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Practical Banking. 



ALBERT S.-BOLLES, 



EDITOR OF THE BANKERS MAGAZINE, PROFESSOR OF MERCANTILE LAW AND 
PRACTICE IN THE WHARTON SCHOOL OF FINANCE AND ECONOMY, UNI- 
VERSITY OF PENNSYLVANIA; AUTHOR OF "THE FINANCIAL 
HISTORY OF THE UNITED STATES," "INDUSTRIAL HIS- 
TORY OF THE UNITED STATES," "THE CON- 
FLICT BETWEEN LABOR AND 
CAPITAL," ETC. 









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NEW YORK: 
Homans Publishing Company, 251 Broadway. 
1SS4. 






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Copyright, 1884, 
By HOMANS PUBLISHING COMPANY. 



TO 

LYMAN J. GAGE, 

President of the American Bankers' Association, 

as a token of the author's regard for his friendship, 

and admiration for his rare union 

of a knowledge of 

the history and theory of banking and finance 

with eminent success as a banker. 



PREFACE 



An explanation is needful concerning the origin and composition 
of this work. For several years letters have been received by the 
publisher of the Banker s Magazine inquiring whether a work like 
this existed. Other letters of inquiry have been received concerning 
the Banker s Common-Place Book, which, after the issue of several edi- 
tions, went out of print. For a long period I have been trying to 
find an opportunity to embody the more important matters contained 
in that work, with additional information in a new form, but the 
desire to complete other undertakings resulted in the postponement 
of this until after my connection with the School of Finance and 
Economy in the University of Pennsylvania, when the need of the 
book for the purpose of instruction was so great that the prepara- 
tion of it was begun. The work, therefore, has been prepared to 
serve a double purpose ; first, for those in banks, and elsewhere, 
who wish to learn how the business of banking is conducted; and, 
secondly, for use as a text book for the students whom it is my 
pleasure to instruct. 

I have not aimed to produce an original work, but the best for 
the purposes mentioned. Accordingly, I have profited by the labor 
of others to a considerable extent, and it is fitting that I should 
acknowledge my indebtedness to them. In 1858 James S. Gibbons, 
Cashier of the Ocean Bank of New York, wrote a work on The 
Banks of New York, which ran through ten editions,, and merited 
the favorable reception accorded to it. Changes, however, have 
occurred in banking methods since he wrote, while the style of 
Mr. Gibbons' work, though very lively and appropriate for the gen- 
eral reader, is not suitable for a class-room book. Nevertheless, I 
have drawn very largely from that source in the preparation of 
Part I. and with much pleasure I acknowledge my indebtedness to 
this pioneer in describing the methods of conducting the business 
of banking. 



VI PREFACE. 

Aid has been derived from other sources. This has been 
acknowledged in various places, but additional mention may be 
properly made of several writers and sources of information. The 
more important sections of the Banker's Common-Place Book have 
been thoroughly revised and incorporated with other matter in 
Chapters VI. and VII.; and the essay entitled "Suggestions to 
Young Cashiers on the Duties of their Profession," is given in the 
Appendix. Another portion of Chapter VII., from pages 51 to 58, 
was written by George Walker, formerly Bank Commissioner of 
Massachusetts, and a banker of many years' experience, who has 
justly acquired the high reputation he enjoys as a financial writer 
on both sides of the Atlantic. Chapter XIV., on " The Book- 
keeper," has been prepared by S. R. Hopkins, who has happily joined 
an exceptionally valuable experience as an accountant in all its 
forms, private, corporate and municipal, with excellent facility for 
description. He has also prepared the last part of the work re- 
lating to " Trust Companies." The chapter on " Private Banking" 
is from the pen of Eugene R. Leland, of New York, formerly a 
banker in Wisconsin. 

Part I., relating to " Deposit and Discount Banking," with the 
exception of three chapters, has also been revised by Frederick B. 
Schenck, Cashier of the Mercantile National Bank of New York. For 
the interest he has taken in the subject, and for the valuable ideas 
and suggestions with which he has enriched this part of the work, I 
am profoundly grateful. To William E. Gould, Cashier of the First 
National Bank of Portland, Maine, I am indebted for the further 
examination and emendation of the proofs of Part I. ; and to J. M. 
Dreisbach, Cashier of the Second National Bank of Mauch Chunk, 
Penn., for information relating to Country Banking and to the Bal- 
ance Sheet in the Appendix ; and also to Charles I. DeBaun, Assistant 
Cashier of the National Park Bank of New York, for his kindness 
in revising the chapter on Bookkeeping. 

Part Second, relating to Savings Banks, with the exception of 
the first and last chapters, is the work of Charles E. Sprague, Sec- 
retary of the Union Dime Savings Bank of New York. A practical 
writer, and an experienced Savings bank officer, it is believed that no 
better description of the method of conducting the Savings-bank 
business could be presented to the reader. 



PREFACE. Vll 

The Third Part, relating to Clearing-Houses, has been prepared 
by Dudley P. Bailey, of Boston. For several years he has devoted 
much study to the subject, and some of his papers have attracted 
wide attention. I know of no one who could have given a better 
account of the method of conducting the business of these insti- 
tutions. In this connection we would not omit to mention the 
names of Nathaniel G. Snelling, Manager of the Boston Clearing- 
house, and Wm. A. Camp, Manager of the Clearing-house in New 
York, for information and other assistance rendered by them in the 
preparation of this part of the work. Important assistance was ren- 
dered by W. D. Snow, Secretary of the American Loan and Trust 
Company, and by L. K. McKinney, Trust Clerk of the same 
Company, in preparing Part IV. relating to Loan and Trust 
Companies. Finally, it may be added that the entire work 
has been carefully read and revised by Benjamin Homans, a name 
familiar to the readers of the Banker s Magazine, who, from many 
years' experience as a banker, possesses a very complete knowledge 
of the details of the banking business, and who has been unwearied 
in his endeavors to render the work as accurate as possible. 

I trust that the work will prove useful. That it may be im- 
proved in future editions, criticisms, facts and suggestions are so- 
licited from every intelligent source. 

Albert S. Bolles. 

Philadelphia, October jist, 1884. 



* 






CONTENTS- 
PART i. 

DEPOSIT AND DISCOUNT BANKING, 

Page 
CHAPTER I. 

The Origin and Nature of Banking 3 

CHAPTER II. 
The Utility of Banking 6 

CHAPTER III. 
The National Banking System 9 

CHAPTER IV. 
State Banks , 14 

CHAPTER V. 
How Banks are Organized and Issue Notes 16 

CHAPTER VI. 
The President 24 

CHAPTER VII. 
Directors' Meetings and Discounting 43 

CHAPTER VIII. 
The Cashier 72 

CHAPTER IX. 
The Paying Teller 77 

CHAPTER X. 
The Receiving Teller 88 

CHAPTER XI. 
The Note Teller 93 

CHAPTER XII. 
The Discount Clerk 97 

CHAPTER XIII. 
Collections 100 



X CONTENTS. 

CHAPTER XIV. 
The Bookkeeper 104 

CHAPTER XV. 
The Runner and Porter 128 

CHAPTER XVI. 
Dealings in Exchange 130 

CHAPTER XVII. 
Private Banks 139 

CHAPTER XVIII. 
Country Banking 143 



PART II. 

SAVINGS BANKS. 

CHAPTER I. 
Utility of Savings Banks 151 

CHAPTER II. 
Janitor 158 

CHAPTER III. 
The Depositor 159 

CHAPTER IV. 
The Receiving Teller 165 

CHAPTER V. 
The Paying Teller 170 

CHAPTER VI. 
The Bookkeeper 173 

CHAPTER VII. 
The Treasurer 177 

CHAPTER VIII. 
The Secretary 181 

CHAPTER IX. 
The President 196 

CHAPTER X. 
The Board of Trustees 197 

CHAPTER XI. 
The Attorney 200 



CONTENTS. Xr 

CHAPTER XII. 
State Supervision and Reports 203 

CHAPTER XIII. 
How Investments Should be Made 20S 



PART III. 

CLEARING-HO USES. 

CHAPTER I. 
Origin and Utility of the Clearing-house 217 

CHAPTER II. 
Organization and Mechanical Arrangements 222 

CHAPTER III. 
Preparation of the Exchange 224. 

CHAPTER IV. 
How Clearings are Made 229 

CHAPTER V. 
How Outside Banks Make Clearings 234. 

CHAPTER VI. 
Payment of Balances 236 

CHAPTER VII. 
Clearing-house Certificates 239, 

CHAPTER VIII. 
The Records Kept and their Uses 242 

CHAPTER IX. 
Fines 246 

CHAPTER X. 
History of the New York Clearing-house 247 

CHAPTER XI. 
Clearing-houses Outside New York 250 

CHAPTER XII. 
Foreign Clearing-houses , 263 

CHAPTER XIII. 
Country Clearings 274 



i 



X ii CONTENTS. 

PART IV. 

LOAN AND TRUST COMPANIES, 

CHAPTER I. 
History and Scope of Loan and Trust Companies., 281. 

CHAPTER II. 
How Business is Conducted 283 

APPENDIX. 

Banking as a Profession for Young Men 293 

Advice to Depositors 297 

Suggestions to Young Cashiers on the Duties of Their Profession. 301 
Daily Balance Sheet 316 



PART I. 
DEPOSIT AND DISCOUNT BANKING. 



PRACTICAL BANKING. 



CHAPTER I. 



THE ORIGIN AND NATURE OP BANKING, 



The term bank is supposed to be derived from banco, the Italian 
word for bench, the Lombard Jews in Italy having benches in the 
market-place where they exchanged money and bills. When a banker 
failed, his bench was broken by the people, and he was called a 
bankrupt. 

This derivation of the term, however, is probably wrong. " The 
true original meaning of banco," says MacLeod,* "is a heap, or mound, 
and this word was metaphorically applied to signify a common 
fund, or joint stock, formed by the contributions of a multitude of 
persons." 

A brief account of the first banking operations in Venice will 
dispel the haze enveloping this subject. In 1171 the financial con- 
dition of Venice was strained in consequence of the wars in which 
the people were engaged. The great council of the republic fin- 
ally determined to raise a forced loan. Every citizen was obliged 
to contribute the hundredth part of his possessions to the State, 
receiving therefor interest at the rate of five per cent. The public 
revenues were mortgaged to secure the interest, and commissioners 
were appointed to pay the interest to the fundholders and to trans- 
fer the stock. The loan had several names in Italian, Compera, 
Mutuo, but the most common was Monte, a joint stock fund. After- 
ward, two more loans were contracted, and in exchange for the 
money contributed by the citizens, the commissioners gave stock 
certificates bearing interest, and which could be sold and trans- 
ferred. 

* Principles of Economic Philosophy, vol. i, p. 547. 



4 PRACTICAL BANKING. 

At this period the Germans were masters of a great part of Italy, 
and the German word Banck came into use as well as its Italian 
equivalent Monte. The Italians ere long changed Banck into Banco, 
and the public loans or debts were called Monti or Banchi. Thus 
an English writer, Benbrigge, who wrote in 1646, mentioned the 
"three bankes" at Venice, by which he meant the three public 
loans, or Monte, that we have described. Likewise Count Cibrario, 
who wrote a work on Political Economy in the Middle Age, says, " it 
is known that the first Bank, or Public Debt, was erected at Venice 
in 1 171." Other proof of the same nature might be added to 
show that Banco in Italian meant a fund formed by several con- 
tributions ; and the Bank of Venice was really the first funding 
system, or system of public debts. 

"A banker," says Gilbart, "is a dealer in capital, or, more prop- 
erly, a dealer in money. He is an intermediate party between the 
borrower and the lender." The difference between the rate re- 
ceived by the banker, for the use of the money loaned by him, 
and the rate he has to pay for it, is his profit. 

" By this means he draws into active operations those small sums 
of money which were previously unproductive in the hands of pri- 
vate individuals, and at the same time furnishes accommodation to 
those who have need of additional capital to carry on their busi- 
ness." In other words, a bank is a means for organizing capital 
whereby its full power may be utilized. The function of a bank 
in storing up capital, and thus increasing its power, has been 
likened to that of a dam put across a stream. Before the erec- 
tion of the structure, the waters coursed their way through wood 
and meadow, contributing, it is true, to the diversity and beauty 
of the scene, beside satisfying a needful want of man and beast. 
To the poet, the stream gave forth an unregarded music, while a 
De Quincey would hearken with profound emotion and awe 
to the "sound-pealing anthems, as if streaming from the open 
portals of some illimitable cathedral." But by storing up the 
waters, a force is collected which can be used for running the 
largest factory, and thus ministering in a very potent way to ad- 
vance the material prosperity of man. 

There are several kinds of banks. They may be divided first into 
private and public banks. Private banks are conducted by individ- 
uals without incorporation. They are very numerous in our country. 
The number given in the Banker's Almanac and Register, not in- 
cluding brokers, for the year 1884, was 3,387. They exist in all the 
States and Territories. Some of them have flourished for a long 
period, and are regarded very sound, and worthy of the highest 
credit. 

Chartered banks may be divided into two classes : those organized 
and existing under the laws of the United States; and State institu- 



THE ORIGIN AND NATURE OF BANKING. 5 

tions. The latter may be again divided into Deposit and Discount 
banks, Savings banks and Trust companies. Each class will be de- 
scribed hereafter. 

The business of banking consists ( i ) in receiving deposits of 
money on which interest may or may not be allowed ; ( 2 ) in 
making advances of money, principally in the way of discounting 
notes; (3) in effecting the transmission of money from one place 
to another. This is true of the ordinary banks of deposit and dis- 
count, both State and National. 

The disposable means of a bank consists ( 1 ) of the capital paid 
down by the shareholders ; ( 2 ) the money deposited with it by 
its customers ; ( 3 ) the notes it can circulate ; ( 4 ) the money it 
receives in the course of transmission, and which, of course, it must 
repay at another place. 

The expenses of a bank may be thus classified : rent, taxes and 
repairs of the banking-house, salaries of officers, stationery and 
postage. To this may be added interest upon deposits, if allowed. 

The profits of a bank consist of that portion of its total re- 
ceipts, including discount, interest, dividends and commissions, which 
exceed the total amount of expenses. 



PRACTICAL BANKING. 



CHAPTER II. 
THE UTILITY OF BANKING.* 

i. Banks are useful as places of security for the deposit of 
money. Not long ago a Western farmer received nearly ten thousand 
dollars in specie from the Government in payment for bonds. Not 
regarding a bank as a safe place for depositing his gold, he put it 
in the bottom of a barrel in his wood-shed, filled it nearly full of 
ashes, and the remainder with straw ; he then made a nest there, 
filled it with eggs, and put them in the custody of a setting hen. 
He thought that his sagacity was quite equal to the occasion. 
After waiting a couple of weeks he concluded, one Sunday, when 
having nothing else to do, that he would examine his highly origi- 
nal safe in the wood-shed. The old hen was decidedly cross, and 
did not enjoy his presence. Still she felt better than he did as 
soon as he had plunged his arm down the side of the barrel and 
found that some one had kindly relieved him of his gold. Prob- 
ably he will think more highly of banks as places of deposit in 
the future. 

The need of a safe place of deposit gave rise to the leaving of 
valuables with the goldsmiths of London. If money is deposited 
in a bank and lost, even though not negligent it is responsible. 
Robberies would rapidly multiply if much money were kept in 
houses. The depositing of it with banks spares many a house 
from the invasion of robbers. 

2. A greater profit is acquired by the owners of money than 
would be if banks did not exist. The allowance of interest by 
'" the new-fashioned bankers " has been considered the origin of 
modern banking. A large amount of money, in the aggregate, 
would remain idle and unproductive if these institutions did not 
exist. By offering to pay interest, persons having money are in- 
duced to deposit it with banks, and thus increase their gains. 

3. Moreover, the payment of interest on deposits is a stimulant 
to accumulate money. Were there no Savings banks, a large por- 

* On this subject Mr. George S. Coe, President of the American Exchange National 
Bank, delivered an admirable address before the American Bankers' Association, in 1882, 
answering the question, "What Important Function Do We, as Bankers, Perform?" See 
Banker' s Magazine, vol. 37, p. 170. 



THE UTILITY OF BANKING. 7 

tion of the savings deposited in them would never have been col- 
lected and saved. Probably the majority of these depositors have 
no thought of collecting enough to buy a bond or a few shares of 
stock. Such a process of saving is too elaborate for them. But 
when a way is provided for adding to their savings by simply de- 
positing their money in a bank, thousands, nay millions, of persons 
in our country have availed themselves of the opportunity. 

4. An important utility is that banks loan money to persons who 
wish to borrow it. Loans are made chiefly to persons engaged in 
manufactures, trade, commerce, and other business pursuits. Money 
is especially needful to them to conduct their enterprises. Indeed, if 
they could not obtain it, they could not maintain their place in 
the world of business. The credit that some mercantile houses 
have is worth more to them than the capital they actually possess. 

5. Another utility is that banks save the transmission of money 
from one part of the world to another. Not only is the risk of 
loss from robbery and other accidents avoided, but the money is 
kept in more active circulation. Were it actually sent from place 
to place to effect all the payments that are daily made, a large 
amount must be locked up in the process of transportation, which 
otherwise would be more actively employed. 

6. There is a saving of time in paying large sums by checks or 
bills of exchange. To count the money would be a long process 
in making the many heavy payments of our time. 

7. There is less danger of error when checks are used than when 
money is paid. Of course there are some risks attending the use 
of checks. But in paying with money there is also the risk of 
getting counterfeits, light weight, or otherwise defective coin. 

8. Besides, checks constitute a good record of one's expenditure. 
If an individual deposits all the money he receives with a bank, 
and draws it out by checks, his check-book contains the story of 
his income and expenditure. For persons who do not have strict 
business habits this mode of keeping their money and paying their 
bills is especially worth observing. 

9. A bank account is very useful if a payment is disputed. In- 
dividuals do not always take receipts for the money they pay, and 
even if they do, sometimes lose them. If a bill be paid, but no 
proof can be furnished of paying it and payment be again de- 
manded, too often it must be paid a second time. But if a check 
for the bill be given this is the best kind of evidence of pay- 
ment. 

10. If one has an account with a bank it is often a good chan- 
nel for getting useful business information. If one has money to 
collect or to remit, a banker, when asked, will state the best way of 
proceeding. Not infrequently bank officials give valuable advice 
pertaining to investments and other matters. 



8 PRACTICAL BANKING. 

ii. An eminent English banker,* from whose work on Banking 
many of the ideas in this chapter have been obtained, has said that 
"banking also exercises a powerful influence upon the morals of 
society. Tt tends to produce honesty and punctuality in pecuniary 
engagements. Bankers, for their own interest, always have a regard 
to the moral character of the party with whom they deal ; they 
inquire whether he be honest or tricky, industrious or idle, prudent 
or speculative, thrifty or prodigal, and they will more readily make 
advances to a man of moderate property and good morals than to 
a man of large property but of inferior reputation. Thus the estab- 
lishment of a bank in any place immediately advances the pecu- 
niary value of a good moral character. There are numerous in- 
stances of persons having risen from obscurity to wealth only by- 
means of their moral character, and the confidence which that 
character produced in the mind of their banker. It is not merely 
by way of loan or discount that a banker serves such a person. He 
also speaks well of him to those persons who may make inquiries 
respecting him ; and the banker's good opinion will be the means 
of procuring him a higher degree of credit with the parties with 
whom he trades. These effects are easily perceivable. It is thus 
that bankers perform the functions of public conservators of the 
commercial virtues. From motives of private interest they encourage 
the industrious, the prudent, the punctual, and the honest, while 
they discountenance the spendthrift and the gambler, the liar and 
the knave. They hold out inducements to uprightness, which are 
not disregarded by even the most abandoned. There is many a man 
who would be deterred from dishonesty by the frown of a banker, 
though he might care but little for the admonitions of a bishop." 

* Gilbart. 



THE NATIONAL BANKING SYSTEM. 



CHAPTER III. 
THE NATIONAL BANKING SYSTEM. 



As we have seen, the business of banking consists in getting a 
common fund of money, and in lending a part of it. With this 
general conception is associated the discounting of bills of exchange, 
the collection of notes and drafts and the issuing of circulating 
notes. The business may be conducted by one person, who is 
called a banker; or by partners, as in any ordinary business, who 
also are called bankers. Again, a number of men may join their 
capital under a State law, and organize a State bank or associa- 
tion, the capital of which is divided into shares. Capitalists may 
also unite under the laws of the United States, and form a Na- 
tional banking association. 

Under these varying forms a banking business is done. We may 
look at the reasons why men prefer one form to another. If a 
man has considerable means and enjoys the confidence of the com- 
munity, he may prefer to engage in banking alone, unfettered by 
State or National laws. He may conduct his business in his own 
way ; and if the people do not like it they need not patronize 
him. A firm may do the same thing. They may be a law unto 
themselves. But when men organize under a State law, they are 
bound by the law. They are subject to inspection. They must 
pay a tax on the amount, of money used in their business. If 
they issue promises to pay, a coin reserve must be kept to pay 
them. By a National bank is meant not that the Government 
owns or runs it, but authorizes its creation and prescribes its 
mode of doing business. Every association under this law, whether 
in Maine or in Texas, is governed by the same principles, is sub- 
ject to the same inspection, uses the same blanks in making re- 
turns to the Treasury Department at Washington, and is under 
the same penalties for the violation of any duty. All are treated 
alike. The advantage to the people, of this system over any 
other is, the existence of a power above the bank, to which they 
can appeal if injustice is done. Another advantage of this sys- 
tem is the general Government having seen fit to permit these 
associations to issue promises to pay, based on the security of 



IO PRACTICAL BANKING. 

United States bonds held in Washington, for the absolute and 
prompt payment of every note issued on such security, the poor- 
est and humblest citizen knows when he gets his pay on Saturday 
night in a National bank bill, that he has the faith of the Govern- 
ment behind his paper promise to pay. He need not see what 
bank issued it ; for any bank must receive it for a debt due, and 
the Government must pay for it in coin if the local bank fail * 

The National banking system was based on the system of bank- 
ing existing in the State of New York in 1862.^ That system had 
existed many years; it had furnished adequate protection to bill- 
holders ; and in several respects was better than any system which 
had preceded it. The Rev. Dr. John McVicker, professor of Politi- 
cal Economy in Columbia College, was the author of the system, 
and set it forth in a letter to a member of the New York Legis- 
lature, entitled, Hints relating to Banking, written in 1827. As this 
is the principal banking system in the country, and the only one 
by which banks now issue notes of their own, the chief features 
are worth describing in this place. 

By the National law, banking associations may be formed by five 
or more persons who must specify in their articles of association 
the general objects for thus uniting. 

They must make " an organization certificate " specifying : 

A. — The name assumed by the association. 

B. — Its place of business. 

C. — The amount of its capital stock and the number of shares into 
which it is divided. 

D. — The names and residences of the shareholders and the number 
of shares held by each. 

E. — A declaration that the certificate is made to enable them to 
avail themselves of the advantages of the act. 

No association may be organized with a less capital than % 100,000, 
except that banks with a capital of not less than $ 50,000, may, 
with the approval of the Secretary of the Treasury, be organized 
in any place with a population not exceeding 6,000 inhabitants. In 
cities with a population exceeding 50,000 persons, at least $200,000 
capital is required. Any National banking association designated for 
the purpose by the Secretary of the Treasury, may become a deposi- 
tory of public money and be employed as financial agent of the Gov- 
ernment. 

Associations so designated must give satisfactory security by the 
deposit of United States bonds, or otherwise, for the faithful per- 
formance of their duties. 

The association may sue and be sued, elect directors, who, in 
turn, may elect a president, vice-president, cashier and other of- 

* See W. E. Gould's address before the American Bankers' Association, 1881. 



THE NATIONAL BANKING SYSTEM. II 

ficers ; discount and negotiate promissory notes, drafts, bills of ex- 
change, and other evidences of debt ; receive deposits, buy and sell 
exchange, coin and bullion ; loan money on personal security, issue 
and circulate its own notes, and make all needful by-laws not in- 
consistent with the Banking Act. 

There must be at least five directors. Each director must own 
at least ten shares of the stock ; he holds his office until the elec- 
tion and qualification of his successor. Annual meetings are held 
in January. The capital stock is divided into shares of $100 each, 
and is transferable. The liability of a shareholder is limited to a 
sum equal to the par value of his stock. 

Before beginning business, fifty per cent, of the capital stock of an 
association must be paid in, and ten per cent, of the remainder 
monthly, until it is all paid. 

The next step is the transmission by the association of a certifi- 
cate to the Comptroller of the Currency ( who is the chief official 
of the Government in this particular department) stating that fifty 
per cent, of the capital has been paid, and that all the provisions 
of the law with reference to organizing a bank have been observed. 
He then makes such an examination as may be thought necessary, 
and if he finds that the law has been properly complied with, he 
gives to the association a certificate to that effect, and that it is 
authorized to begin business. This certificate must be published 
within sixty days from the time of issuing it.* 

Formerly the entire amount of bank notes which the banks were 
permitted to issue was limited to $300,000,000, but in 1875 the law 
was changed, and they can now issue as many as they please, pro- 
vided they have a certain amount of Government bonds deposited 
with the Treasurer. 

As a necessary preliminary to furnishing notes for circulation, the 
Comptroller of the Currency under the direction of the Secretary 
of the Treasury, is entrusted with the important duty of engraving 
plates in the best manner, to guard against counterfeiting and fraud- 
ulent alterations, and to print therefrom and number so many circu- 
lating notes in blank as may be required to supply the associations 
entitled to receive the same. 

After these notes have been signed by the president or vice-presi- 
dent and the cashier, they are issued, and circulate the same as 
money, and are received at par everywhere in payment of taxes ex- 
cises, public lands, and all other dues to the Government, except for 
duties on imports ; and also for all salaries and other debts owing 

* The late Comptroller of the Currency, Mr. Knox, issued a very useful Government pub- 
lication of forty pages, entitled Instructions and Suggestions of the Comptroller of the Cur- 
rency in regard to the Organization, Extension and Management of National Banks. It 
contains, among other matters, many of the forms required by the National law, an excellent 
set of by-laws, and a summary of the principal restrictions and requirements of the National 
bank law. 



12 PRACTICAL BANKING. 

by the United States, except interest on the public debt and in re- 
demption of the legal-tender notes. They are also a legal tender 
for any debt or liability to every National banking association. 

Every National banking association is required to keep on de- 
posit in the Treasury of the United States a sum equal to five per 
centum of its circulation, which sum is counted as part of its law- 
ful reserve. All notes of National banks worn, defaced, mutilated, 
or otherwise unfit for circulation, are forwarded to the Treasurer 
of the United States for redemption. Such redemptions are reim- 
bursed from the five per cent, fund, and notes worn and unfit for 
circulation are then forwarded to the Comptroller of *the Currency 
for destruction. After making a record of the notes thus received, the 
Comptroller directs their destruction in the presence of four persons. 

National banks having a capital of $150,000 or less are required 
to keep on deposit with the Treasurer of the United States, United 
States bonds equal in amount to one-fourth of their capital stock. 
Other banks are required to keep on deposit not less than $ 50,000 
in United States bonds. Upon a deposit of bonds the association 
making the same is entitled to receive from the Comptroller cir- 
culating notes equal in amount to ninety per centum of the par 
value of the United States bonds so deposited, but the total 
amount of such notes issued to any association may not exceed 
ninety per centum of the amount of its capital stock actually 
paid in. 

Every bank annually examines or has examined the bonds de- 
posited in the office of the United States Treasurer, comparing 
them with the books of the Comptroller, and^ with its own record 
of them, and if the bonds exist and the record of them is correct, 
executes a certificate to that effect to the Treasurer. 

A National bank can hold real estate under the following con- 
ditions and no others : 

A. — The building needful to transact its business. 

B. — Land mortgaged to it in good faith to secure debts previously 
contracted. 

C. — Land conveyed to it in satisfaction of debts previously con- 
tracted in the course of business. 

D. — Land purchased under sales ordered by courts in order to 
secure debts due to the bank. 

E. — In the last three cases the' real estate cannot be held beyond 
five years. 

The rate of interest which a bank may take on any note, bill of 
exchange, or other evidence of debt is the rate permitted by the 
laws of the State or Territory where the bank is located. 

Every bank in sixteen of the principal cities of the United States 
must keep on hand always in lawful money as a reserve fund, 
twenty-five per cent, of the amount of its deposits ; and the banks 



THE NATIONAL BANKING SYSTEM. 1 3 

in other places must keep on hand fifteen per cent, of their de- 
posits. The banks last mentioned, however, may keep three-fifths 
of their reserve en deposit with such of the National banks as 
may be selected by them, approved by the Comptroller of the 
Currency, and doing business in any of eighteen specified principal 
cities of the United States. 

National banks in any of the sixteen cities excepting New York, 
may keep one-half of the required twenty-five per cent, reserve on 
deposit in the City of New York. 

Whenever this reserve of twenty-five per cent, for one class of 
banks and fifteen per cent, for the other, falls below that amount, 
the bank can make no new loans, except by purchasing or discount- 
ing bills of exchange payable at sight, nor make any dividend until 
the requisite proportion of reserve to circulation and deposits has 
been restored. 

They cannot make loans on the security of their own stock, 
except to prevent a loss on a debt previously contracted, nor can 
they pledge their own notes of circulation for the purpose of get- 
ting money to pay in their capital stock. 

They are also subject to examination by officers appointed by the 
Government. 

The banks must make reports to the Comptroller of the Cur- 
rency according to the forms which he prescribes, exhibiting in de- 
tail the resources and liabilities of the associations at the close of 
business on any past day specified by him. The Comptroller is 
required to call for not less than five such reports during each 
year. These reports must be verified by the oath of the president 
or cashier and attested by the signatures of at least three of the 
directors. 

In addition to the reports mentioned above, each association is 
required to make a sworn report within ten days after the declar- 
ation of any dividend, \>i the amount of such dividend, and the 
amount of the net earnings. In order to enable the Treasurer to 
assess the duties, each association is required to make a sworn re- 
turn to the Treasurer of the United States of the average amount 
of its notes in circulation. 

The Comptroller employs district agents to examine from time 
to time, usually once a year, the affairs and assets of the several 
banks. For this service a stipulated charge is assessed upon the 
bank. 

The charters of many National banks expired in 1882. On the 
twenty-fifth of February, 1883, ,the charters of 297 more expired. 
On the twelfth of July, 1882, Congress provided for their renewal. 
Many of the National banks are now existing under this law. The 
same period of life is given to them as was given before — twenty 
years. 



14 PRACTICAL BANKING. 



CHAPTER IV. 
STATE BANKS. 

Although 2,589 banks (April 24) are in the National system, 
nearly eleven hundred banks are flourishing under State regulations. 
These in most cases existed before the enactment of the National 
banking law. They declined to change, though they were obliged to 
retire their circulation. A larger number of these banks are located 
in Missouri than in any other State. At the beginning of the year, 
1884, 153 State banks existed there; New York had the next largest 
number, 98, while Pennsylvania had only one bank less. In Iowa 
there were 78, in California 71, in Kentucky 66, and in Kansas 50 
Michigan had 36, Ohio 35, Virginia 43, Wisconsin 38, Nebraska 
and Minnesota each 32. Other States had a much smaller num- 
ber. 

The Government imposed a tax of ten per cent, on the circulation 
of the State banks, which took effect on the first of July, 1866, under an 
amendment to the law creating the National banking system. This rate 
was too high to allow any profit on the State bank circulation, and 
consequently it was withdrawn. Indeed the object of the law was to 
expel it, in order to make room for the circulation of the National 
banks. In other respects, however, the State banks are conducted as 
they were before the creation of the National banking system. But the 
internal mechanism of a State and National bank is quite the same, 
and, therefore, in describing the methods of conducting a discount 
bank, no distinction need be kept in mind between a National and 
State bank. The former alone issues circulating notes, and the 
mode of doing this will be explained more fully hereafter. The 
main function of receiving deposits and of loaning them is per- 
formed in essentially the same way by all banks. Of course, there 
are minor differences; every bank has some ideas of doing busi- 
ness that are peculiar to it, but it may be truly said that the 
main features of the banking business are the same throughout 
the country. The greatest differences exist between banks in the 
large cities and the small places, and these will be explained in 
their proper place. 

State banks possess some advantages, in the opinion of some 
bankers, that are worth mentioning : 



STATE BANKS. I 5 

1. They are not examined so critically; in some cases are not re- 
quired to make returns to State officials, and in no case are such 
full returns required as the National law requires to be made. Yet 
the numerous requirements by the Government strengthen public 
confidence in the banks, and probably the majority of bank- 
ing officials would not have them removed or lessened if they 
could. Not all think so, however ; hence some banks remain under 
the shadow of the State instead of the Nation, because they are 
watched less closely and can do things which would not be per- 
mitted if they were National banking institutions. 

2. There is another advantage which State banks claim to pos- 
sess over their National rivals. They can certify checks in excess 
of the amount which the depositor may have at the moment of cer- 
tifying. The National banks are expressly forbidden to do this. In 
several cases they disregarded the law, but the Comptroller of the 
Currency dealt with the offenders so severely that the banks 
which were the most desirous of continuing the practice with- 
drew and reorganized as State banks. The institutions that with- 
drew were located in New York City, and they maintained that 
whatever advantages they would gain if they continued to exist as 
National banks would not equal their losses if the practice of 
over-certifying could not be continued. Wishing to continue it and 
not infringe the law, they became State banks, and as such could 
continue this objectionable practice without legal hindrance. 

3. Another advantage enjoyed by the State banks has been with 
respect to taxation. As the profits on bank-note circulation 
have declined in consequence of the advancing premium on the 
Government bonds which must be deposited with the United States 
Treasurer to secure the notes, and also in consequence of the 
diminishing rate of interest, the advantages of the National bank- 
ing system are not so great as they were in the beginning. 

The banking laws of the States possess many variations, and we 
have not space for even an abridgement of them. As no State 
banks issue circulating notes, all regulations pertaining to that sub- 
ject are dormant. The main provisions of the banking law of New 
York are similar to those of the National Bank Act, which were 
described in the previous chapter. 



l6 PRACTICAL BANKING. 



CHAPTER V. 
HOW BANKS ARE ORGANIZED AND ISSUE NOTES. 

The subject of this chapter was so well handled by Mr. Wm. E. 
Gould, cashier of the First National Bank of Portland, Maine, at a 
meeting of the American Bankers' Association, that his paper may 
fitly be incorporated into our work. 

Let us start a bank in a New England city. Some stormy winter 
afternoon a half dozen men are sitting around a stove in a counting- 
room on Commercial Street. They have discussed the weather and 
their neighbors, have whittled the chairs, have told a few stories, 
and have listened to the eloquence of a teamster who dropped in, 
as he cursed the banks and ventilated some new theory of finance. 
By the way, says Mr. A, it seems to me that if we had another 
bank here, we could have an easier money market, and could get 
better accommodation. Why, I took up a note the other day, to 
my bank, and they didn't discount it, though with my own eyes I 
saw the clerk put a discount on the little book for old Sykes, and 
I reckon my note is as good as his. The other members of the 
crowds being well aware that Mr. A is a habitual growler, as well as 
a persistent borrower of % 1 50 a day to make his checks good, and 
an inveterate swapper of checks, do not wonder at the obstinacy 
of the bank. In a few minutes Mr. A goes out, and in walks Mr. 
B, who is a well-known, honorable, retired merchant. The subject 
is renewed, and Mr. B remarks that he has had some talk of 
seeing some of the merchants and inquiring how they would feel 
about having a new bank. Some variety of opinion is expressed. 
But Mr. B at length says that he has determined to try it on, if he 
can find the right men to go with him. He wants a grocer and a 
lumber dealer, and a retired man, like himself, and one or two 
more good men, to make up a board of directors. He says that 
there is plenty of money seeking investment, and that v/ith good 
management the stock will be worth $125 in three years. 

In the course of a week or so Mr. B has selected five men who 
will sign a paper subscribing for at least ten shares each of a new 
bank, to be called the National Bank of Commerce, to be located 
in Portland, Maine. They write to Washington, to an officer of the 
Treasury Department, called the Comptroller of the Currency. He 



HOW BANKS ARE ORGANIZED AND ISSUE NOTES. IJ 

makes inquiries about the needs of Portland and the character of 
the men, and at length sends some blanks for the signatures of 
the subscribers to the proposed capital stock of % 250,000. He re- 
minds the gentlemen that the law must be strictly followed, that 
the gentlemen who are to be directors must each own absolutely 
at least ten shares of the stock, and that at least one-half of the 
money must be paid in before he can grant them any rights. Mr. 
B takes his paper around among his friends, and in a few weeks he 
has the amount subscribed. Certain preliminary steps are now 
taken. A room is hired, a good vault built, and the subscribers 
are called together to choose five directors. A cashier is selected. 
There are many applicants for this office, but the directors choose 
Mr. Perkins, because he has been in another bank for several years, 
has borne a good reputation and knows his business. 

The papers, duly signed and sworn to, have been sent to Wash- 
ington for approval. They come back in a week, with a big seal, 
and a certificate that must be published in some local paper, show- 
ing that the bank is recognized by the powers, that be. One of the 
stationers' houses has subscribed to the stock, and so they are 
making the new books. The cashier says they must hurry up first 
with a stock journal and stock ledger, as the money is to be paid 
in at once, and he must have these books. That old growler, Mr. 
A, comes round before the bank is fairly started, and wants to hire 
$ 500, on four months, with a poor indorser. When he is told that 
they can't lend any money till they get under way, he remarks that 
he thought this bank was going to help our merchants, and he 
would like to know what banks are for. The teamster, of whom we 
spoke a few moments ago, said, as Mr. A returned to his office, 
that he could tell what banks are for : " Yer see, they are jest to 
skin us poor fellows who haven't got nothing." Presently, how- 
ever, our new bank has all of its $ 250,000 paid in. The directors 
are called upon to decide whether they will issue circulating notes 
or not. And for fear that some of you present to-night may think 
that banks are compelled to issue notes, and that their whole profit 
is derived from the profit upon the circulation, I will at this point 
explain a few things. 

The business of banking does not, of necessity, include the func- 
tion of issuing bank notes. The privilege of issuing notes is 
granted by the State or the Nation, as the case may be; but, for 
the privilege, certain taxes have to be paid to the party granting 
the permission. In addition to the tax, the expense of handling 
the notes, the expenses of the redemption of the same, the express 
charges, etc., make it a serious question with many banks whether 
it pays to issue notes. The fact is, though it is not often stated, 
that a very considerable number of large and well-managed banks 
long ago gave up their circulation, finding that it did not pay. In 



l8 PRACTICAL BANKING. 

places like Portland, where the banking capital is not excessive, I 
think that a fair profit can be made if money is worth five and 
a half per cent, the year through. But the banks here would 
make a respectable living if they had no circulation. 

Another mistake of the same kind is, the claim that the banks 
make large amounts out of the lost bills. I have heard it said that 
fully a quarter part of all that is issued never returns, and is 
consequently saved by the bank. Now, this is a great mistake, 
for, in the case of National banks the Government, and not the 
bank, gets all the benefit. Even in the case of the State banks the 
proportion of missing bills is very small. I was once connected 
with a State bank that had a circulation for several years of more 
than half a million of dollars. Its bills went all over New England 
and into the West and Canada. When our Maine soldiers went 
to the front they were paid in many cases in the notes of this 
bank. Those notes went thus into many Southern States, passed 
through many battles, were found in soldiers' pockets in the hospi- 
tals and on the field. Now, you would say that there must have 
v been a large loss of money in this particular case. Well, the notes 
keep straggling back to Portland even to this day ; they have al- 
ways been paid, and they always will be. An old lady dies, and a 
crisp, clean bill is found tucked away in her pocketbook. Now and 
then one turns up from down south or the extreme west, but to-day 
there is only about $ 1,900 outstanding of all the many notes 
that were issued by this one bank that had so peculiar a circulation. 
Not long ago three clean five-dollar notes were presented for re- 
demption. They had been hidden away in an old lady's wallet ; 
perhaps she had kept them to pay her funeral bills. Eighteen 
years, at least, had passed since these bills were paid out. We oc- 
casionally read of some drunken swell who lights his pipe or cigar 
with a dollar bill ; but ' I always think, when I read that story as 
it turns up periodically, that the bill in question was a poor coun- 
terfeit, laid by for an emergency of brag and show. 

Having cleared up, these errors let us go back to our new bank 
that we left with $250,000 paid in. After discussion, the directors 
decide in favor of issuing notes. What is the process? You under- 
stand, of course, that all National bank notes are based upon a secur- 
ity deposit made by the bank with the Treasury Department in Wash- 
ington ; that is to say, for every $ 1,000 United States bond deposited, 
the Government will grant $ 900 in new bills to the bank.* No bank, 
however, can have more bills than its capital, many do not have 
so much; and, as has been previously said, some banks prefer to 
have no circulation at all. Our new bank has $ 250,000 capital ; and, 
taking up the newspaper, the managers are not consoled by the 
quotation of 113 for a four-per-cent. bond. But, to get their circu- 

* See provisions of National Banking Law, Chapter III., page 12. 



HOW BANKS ARE ORGANIZED AND ISSUE NOTES. 19 

lation they must first deposit their bonds. So they easily can see 
that they cannot buy more than $ 220,000 of four-per-cent. bonds 
with their $250,000. In other words, $30,000 is sunk in premiums 
for which they have nothing to show. Or, to put it in another way» 
they have spent $30,000 for premiums before they have earned a 
dollar. An order is given to a broker in New York to buy $220,- 
000 in United States bonds, drawing four per cent, interest. The 
broker telegraphs back that he has bought at 113. He has bought 
registered bonds — that is, bonds that have no coupons or semi-an- 
nual interest warrants, but are certificates of ownership of a certain 
quantity in the four-per-cent. loan of the United States. These 
certificates or bonds are in sizes of $ 10,000 in this case, and are 
payable to some party who indorses them over in blank, when they 
are sold. The interest on the bonds comes from the Treasury De- 
partment to the owners by check through the mails, in quarterly 
payments. 

Now that the bonds are bought, and, of course paid for, they 
are sent to the Treasury Department at Washington to be lodged 
with the Treasurer of the United States to secure such an amount 
of circulating notes as, under the law, he is authorized to issue to 
the new bank. This officer issues a certificate that he has had 
$220,000 in United States four-per-cent. bonds converted into 
bonds bearing the name of the United States in trust for our new 
bank ; that is, he holds the bonds as security for the payment of 
the notes that are to be issued by the joint act of the Govern- 
ment and the association. Whenever the bank surrenders the notes 
or an equivalent, then the shareholders can have their bonds trans- 
ferred to them again. But, so long as the bank owes for its notes, 
so long must the bonds remain in the pigeon-holes of the big 
vault of the Treasurer of the United States, all done up nicely, and 
lettered and labeled, so that at any moment the agent of the bank 
can put his hand on them and see that they are safe. The Treas- 
urer sends a document to the Comptroller of the Currency, stating 
that he holds the bonds, and the Comptroller issues an order for 
printing the amount of notes authorized by law, which is ninety 
per cent, of the deposit, the other ten per cent, being left as a 
margin in case of a depreciation of the bonds. So the bank has, 
in the first instance, sunk $ 30,000 in premium on its bonds, and 
now ties up ten per cent, more to make the public absolutely safe 
when they take the bills of that bank. Only $ 198,000 is allotted to 
our new bank. This amount is what is called the circulation of the 
bank. 

The blanks come along in a few weeks, and though the of- 
ficers may think it very pretty to see their names on a bank bill, 
yet before they have signed a quarter of the pile, their hands ache 
and they grow sick of their own names. But the bills must all be 






20 PRACTICAL BANKING. 

signed. Then they are chopped up, and finally make glad some- 
body's eyes. For the privilege of issuing these notes, the banks 
pay to the Government one per cent, a-year tax upon the average 
amount in circulation. Besides this tax, the banks pay the expenses 
of an office in Washington, where the notes of all of the banks are 
received, sorted, sent home for redemption, or, if too much defaced, 
burned and exchanged for clean notes. The expenses of this office 
for a bank of $250,000 capital would be, perhaps, $200 per annum. 
Added to this must be the express charges from Washington to the 
home of the bank. Every week or two a package of bills is sent home 
for redemption. The cost of this service may be $75 more. Then, 
again, the law provides that an amount equal to five per cent, of 
the circulation shall at all times be kept with the Treasurer of 
the United States, as a fund for paying these constant redemp- 
tions ; so that the Treasurer gets his pay for the redeemed bills 
before they start from Washington, and this amount has to be 
kept constantly good by frequent remittances. You notice, there- 
fore, that five per cent, of our $198,000, or $9,900, is tied up, 
dead and profitless, in Washington, all the time ; so that really all 
the bank has to use of its $ 250,000 capital in this direction is 
$ 188,100.* 

There is another side to this story, also. When a bank obtains 
circulation and loans the money derived from it in a community, 
the people in the region are helped. The wheels move round a 
little faster, and I do not know but that a bank is entitled to some 
share of the profit, if it takes all the risks of men's business, their 
tricks, their honesty, and their frequent failures. Very certain it is, 
that if the banks did not issue their notes the people could not 
issue their notes as they do at present. We will now leave this 
branch of banking, and see how our National Bank of Commerce 
makes money in another direction, and at the same time serves 
the people. I refer now to the loaning of money. What money 
has a bank to loan? 1. It has its capital. But, in the case we 
have supposed, instead of loaning its $250,000 paid-in capital, it 
will only have $188,100 to loan, which is the amount of circulat- 
ing notes received from Washington, in exchange for its bonds 
bought with all of its capital. 2. The bank really loans its whole 
capital to the Government by its act of buying $250,000 bonds, draw- 
ing four per cent, interest, so that the bank receives four per cent. 

* I mention these facts to show that the banks do their share in paying taxes, and in mak- 
ing the people absolutely secure in their funds, as well as to point out that there are some 
serious outs in what many people think is a huge monopoly. I shall not contend, however, 
that the banks do not make money out of their circulation. They do. But I think that they 
fully pay for their privilege. It is not possible for a new bank to start to-day and buy bonds 
at present prices, pay taxes and do an honest business, and make much money out of its circu- 
lation. I would myself to-day, as things are, run a bank— a new bank — as quickly without 
circulation as with it, if the institution were located in a city. 



HOW BANKS ARE ORGANIZED AND ISSUE NOTES. 21 

on this amount, as well as what it can make on its circulation. 
3. It has its deposits to loan ; that is to say, after reserving what 
is a prudent amount for the ordinary calls of its depositors, it can 
invest the balance in such a manner that it can be relied upon in 
case of need. 

Experience teaches the bank manager how stable or how unreli- 
able his balances may prove. In an old and well-established bank, 
perhaps two-thirds of the deposits may safely be loaned, on various 
lengths of time and various kinds of securities. In a new bank, 
or in a poor bank, the officer will not be surprised if his balances 
are as unstable as his own power to aid his dealer in an emer- 
gency. These three, then, are, in the main, the sources of means 
for a bank to loan and make money : 

1. The capital. 2. The circulation. 3. The deposits. 

Let us next see how the loans are made. What can our Na- 
tional Bank of Commerce loan upon ? In walks Mr. H. He says 
he wants to hire $ 2,000, and will give as security his son Bill and 
his farm. He is told that the National Bank of Commerce can- 
not loan on real estate, as the law practically prohibits it. Where- 
upon Mr. H remarks that he would like to know of what earthly 
use banks are if a man can't raise money on a good farm and on 
his son Bill's backing. But he is reminded that farms won't pay 
debts, and that in loaning money belonging to other people care 
must be had that the money can be easily forthcoming when the 
debt is due. Mr. B presents a note by a man up in Baldwin, in- 
dorsed by the man's wife and by Mr. Jones of the same town. In- 
quiry fails to bring out the fact that Mr. Jones and the rest of 
the Baldwin family have any intention of paying the note when 
due; but shows that they want to hire the money to help build 
up a cheese factory. Now, while a cheese factory is a glorious in- 
stitution, yet it is not the thing for a bank to loan its money on. 
In other words, banks are not established to make permanent loans, 
but to buy notes on short time, given for the actual purchase or 
sale of .goods. 

In country towns the practice differs. For instance, if there was 
a bank in Bethel, in this State, the drover would present a note 
signed by himself and three neighbors, and would want to hire for 
three months $2,000, so that he might go through the towns pick- 
ing up cattle, and pay his note when he got through the operation. 
So, also, another man would hire money outright to buy hay and 
dried apples, and still another would want a thousand or two to fit 
out a winter logging crew. Back of all these transactions is the 
apparent ready ability of the hirers to pay their debts out of the 
commodities dealt in. The money is not tied up in a farm or a 
cheese factory as a permanent investment. 

In cities the trader brings to the bank a batch of notes given 



22 PRACTICAL BANKING. 

for goods sold to country traders. There is a value received in 
every note. Flour, molasses, sugar, oil, pork, have passed out of the 
store in the city, and the note expresses the value. The dealer in 
the city wants to use his capital over again, and so sells his notes 
to the bank. The bank buys the notes, and gives the dealer a 
credit for the same upon his bank book. 

In New York and some of the larger cities still another practice 
prevails. Merchants have a way of making their own notes and 
selling them outright at the price of money at the time. This can 
only be done by the strongest houses. Other houses go to the 
bank and say, you have for collection on our account a' consider- 
able number and amount of notes; now, hold these as security, and 
loan us a certain amount on our note. This is all legitimate, as 
you will see that the bank has abundant security on hand in a 
form that can easily pay a loan. 

Still another method is that used largely in the Western States. I 
refer to the buying and selling of exchange on eastern cities. A 
man picks up a customer for 200 barrels of flour. The flour is 
ground in Minnesota, for instance. As soon as it is ready for deliv- 
ery he puts it aboard the cars and gets a railroad receipt or bill of 
lading, showing that 200 barrels of flour have been put into such 
cars, shipped to Mr. Jackson, at Portland. The bank in Minnesota 
says that he can pin his bill of lading to the draft he is about to 
make on Mr. Jackson, and the bank will purchase the bill. The 
bank does not depend on Mr. Jackson's credit, for they instruct 
their correspondent in Portland not to give up the bill of lading 
until they get their money. This custom is confined to the West 
and South, and arises from their large sales of produce in the 
East. 

The profit made by banks on their loans is the interest for the 
time that the note or draft has to run from the day it is bought 
by the bank till it matures. Who gets the profit ? The stock- 
holders, of course. The capital is divided up into shares, generally 
of $ 100 each. Twice a year the directors look at the balance sheet 
and say that, after paying the salaries and the taxes, they can pay 
a certain amount to the stockholders. But one old director remarks 
that they must first add to their surplus account an amount that 
the law prescribes before they can divide. The idea of the bank- 
ing law is to make the public safe ; so it is wisely provided that 
until the surplus of a bank is fully twenty per cent, of its capital 
no dividend shall be paid until at least one-tenth of its profits shall 
be added to the surplus. 

There is another little trouble that sometimes prevents the stock- 
holder from getting a dividend as he expects. A bank, like a mer- 
chant, loses money, sometimes, after exercising the greatest care and 
the best judgment, and saying " No, no, no," over and over again. 



HOW BANKS ARE ORGANIZED AND ISSUE NOTES. 23 

Sometimes a man dies, and everybody is surprised to learn that 
the estate cannot pay its debts. The bank holds his paper with 
only a fair indorser. This fair indorser can't respond to so much 
calamity, and so he fails. The bank settles off and loses fifty per 
cent, of its debt. Or, a fire burns a man's store and stock, and he 
is inadequately insured ; the bank loses again. Or, what is worse, 
and what makes a bank man mad (and justly so, too!) is when a 
firm lie, telling all sorts of stories about their business and profits 
and expenses, and the community wake up some fine morning and 
find the bubble collapsed ! ten cents on a dollar and nobody to blame. 

The feeling of reciprocity between banks and their dealers ought 
to be encouraged. The banker is interested in the success of 
his dealer. He sees a great many accounts, and he can be of much 
aid to the merchants in exposing tricks and extended credits, and 
the ' peculiar ways of men who deal with the merchants. The mer- 
chant should feel that the banker is his friend, that if he criticises 
it is from good motives. For instance, here is a young man just 
starting in the wholesale grocery business. He is ambitious to do 
all the business that he can, and probably tries to do more than 
he ought to. In his anxiety he strikes out for new accounts, and 
sells some country traders very large bills. He takes their notes 
and carries them to his bank for discount, where he is kindly told 
that he is selling such a man too much for his good, and the 
bank declines his paper. Now, the banker notices that another con- 
cern is working hard to shove that customer off, and this ardent 
young man may get a big load before he is aware of it. I can re- 
call very many cases where merchants would have saved many bad 
debts if they would but have taken a hint kindly given. 

Young merchants especially ought not to attempt sharp prac- 
tices on their banks. Fictitious balances, or balances arranged so as 
to look well the last day of a month, and exchanged checks, and 
a thousand and one little sneaking ways, only hurt a merchant and 
destroy his credit. The banker's ledger generally shows a continu- 
ous balance, varying with each transaction ; averages, and not " put 
up jobs," show the value of an account. My judgment is, that 
there is now but very little "shaving" and "grinding" exercised by 
the bank towards the borrower. Nor is there any disposition of 
this kind in respectable quarters. Money is an article of merchan- 
dise; it has its price; its price varies like the price of sugar and 
flour. Firms of undoubted credit can hire money lower than can 
some others of lower credit, just as ready money and a sharp buyer 
can buy 100 barrels of flour cheaper than a man who purchases 
on four months and is slow pay. It is true that banks do not 
discount all the paper that is brought to them. Nor are they 
bound to. They have the right of choice as much as a merchant 
has whether he will trust out a bill of goods. 



24 PRACTICAL BANKING. 



CHAPTER VI. 
THE PRESIDENT. 

The president is the chief executive officer of the bank, and 
presides at the meetings of the Board of Directors, but is not 
necessarily the business head or manager of the institution. Some 
banks have a vice-president. The vice-president in the absence of 
the president assumes the functions of the latter. 

In legal matters the president must sign documents conveying 
real estate, and with the cashier must sign certificates of stock 
issued to shareholders, and the circulating notes. He, or the cashier, 
may verify the various reports required by the National Banking law 
to be made to the Comptroller, and must certify to that officer the 
payment of each installment of stock. He cannot act as proxy at 
meetings of the shareholders. 

He is not required to give a bond to secure the bank in the 
event of not faithfully performing his duties, but all the officials 
below him give such security. It is supposed that his large pecu- 
niary interest in his bank, and his well-known standing in the com- 
munity where he resides, will prove an ample guaranty. Of course, 
bank presidents are sometimes recreant to their trusts, but happily 
not often. It is well to believe there are persons living in every 
community whose word is as good as their bond, and for them to 
give such an obligation, therefore, is superfluous. 

The salary of a bank president varies from a very small sum to 
fifteen thousand dollars a year. When his duties are very few, and 
only a slight portion of his time is devoted to the affairs of the 
bank, no salary is paid. This is often the case. 

We have mentioned that in some cases he is the real business 
head of a bank, and that in others he is not. The country banks, 
so called, by which is meant in this place, the banks outside the 
larger cities, are managed by the cashier. Here and there may be 
found an exception. In the large cities, however, the president is 
usually the chief business officer, going to the bank regularly, and 
spending his time there during banking hours. He is a hard- 
working officer, acquainted with all the details of the business, 
and interested in all matters pertaining to the prosperity of his 
enterprise. Occasionally the president of a city bank is a figure 



THE PRESIDENT. 2$ 

head, and then the vice-president or cashier is the chief business 
officer. 

An author, from whom we shall frequently quote, has said : " It 
is considered desirable that the president should possess an in- 
dependent income, and be free from the entanglements of trade. 
Engagement in other business would distract his attention from 
the bank, and might give rise to a conflict of interests. Under the 
pressure of personal embarrassment, with the means of relief in his 
official hands, even a rigid sense of duty might be overcome. The 
highest tone of sentiment on this point is, therefore, adverse to his 
connection with the hazards of commerce. Yet several of our most 
prosperous New York City banks have always been presided over by 
active, enterprising merchants. 

"There are other reasons why a bank president should hold 
himself aloof from mercantile business. With large capital invested 
in a particular branch of trade, his views might insensibly become 
narrow and partial. An engrossing special interest would divert 
his mind from the close study of credits generally, and make his 
judgment less clear, as the condition of commerce becomes more 
critical. In a season of growing stringency in the money market, 
self-interest compels bank directors, in common with others, to 
withdraw their attention from all affairs but their own, and thus 
additional responsibility is thrown on the officers, particularly on 
the president. The discounting of paper is then less strictly con- 
fined to the sessions of the board. It is spread through every 
hour of the day, with specialities and importunities which can be 
dealt with only individually and privately."* 

The truth of Gibbons' first remark has been illustrated in a 
startling manner on more than one occasion. A bank president 
ought not to be regarded morally as a very superior being. If he 
is engaged in outside interests of greater pecuniary or other im- 
portance to him than his bank, there is danger that he will neglect 
or use it for a personal end. This has happened again and again. 
Within a very short time several fresh illustrations have been 
added to those existing before. 

It need hardly be said that a bank president should possess a 
very considerable knowledge, especially of men. It is true that 
many a successful bank president has had only a slight acquaint- 
ance with books, but he has understood men. To have this knowl- 
edge in a marked degree is a gift rather than an acquirement ; yet 
the less fortunate should strive, nevertheless, to acquire by deter- 
mined effort that knowledge of men which is so essential to busi- 
ness success, 

A bank president should keep a keen watch on the movements 
of trade, on the strength and weakness of those to whom money is 

* Gibbons' Batiks of New York, p. 24. 



26 PRACTICAL BANKING. 

loaned, or who are likely to ask for loans, for on the sagacious 
lending of the bank's resources mainly depends its prosperity. Some 
bank presidents read the trade newspapers with great care, and 
search in every quarter for information relating to the borrowers of 
money. If a considerable number of failures occur in a particular 
trade they are carefully noted. A bank president told the writer a 
few years ago that a great deal of tobacco had been injured in curing 
during that year, and that he should be especially careful about 
discounting " tobacco paper," because he expected that a good many 
failures would happen among tobacco manufacturers. This is the 
kind of vigilance required for a bank manager. Still, however wisely 
he may conduct the business of discounting, risks are unavoidable, 
and losses will accrue. 

As correct sentiments beget correct conduct, a banker ought 
to apprehend correctly the objects of banking. They consist 
in making pecuniary gains for the stockholder's, by legal oper- 
ations. The business is eminently beneficial to society ; but some 
bankers have deemed the - good of society so much more worthy 
of regard than the private good of stockholders, that they have 
supposed all loans should be dispensed with direct reference to the 
beneficial effect of the loans on society, irrespective, in some degree, 
of the pecuniary interests of the dispensing bank. Such a banker 
will lend to builders, that houses or ships may be multiplied ; to 
manufacturers, that useful fabrics may be increased ; and to mer- 
chants, that goods may be seasonably replenished. He deems him- 
self, ex-ofhcio, the patron of all interests that concern his neigh- 
borhood, and regulates his loans to these interests by the urgency 
of their necessities, rather than by the pecuniary profits of the 
operations to the bank, or the ability of the bank to sustain such 
demands. When we perform well the direct duties of our station 
we need not curiously trouble ourselves to effect, indirectly, some 
remote duty. Results belong to Providence, and, by the natural 
catenation of events (a system admirably adapted to our restricted 
foresight), a man can usually in no way so efficiently promote the 
general welfare, as by vigilantly guarding the peculiar interests com- 
mitted to his care. If, for instance, his bank is situated in a re- 
gion dependent for its prosperity on the business of lumbering, 
the dealers in lumber will naturally constitute his most profitable 
customers : hence, in promoting his own interest out of their wants, 
he will, legitimately, benefit them as well as himself, and benefit 
them more permanently than by a vicious subordination of his in- 
terests to theirs. Men will not engage permanently in any business 
that is not pecuniarily beneficial to them personally; hence, a 
banker becomes recreant to even the manufacturing and other inter- 
ests that he would protect, if he so manage his bank as to make 
its stockholders unwilling to continue the employment of their 



THE PRESIDENT. 2J 

capital in banking. This principle, also, is illustrated by the late 
United States Bank, for the stupendous temporary injuries which 
its mismanagement inflicted on society are a smaller evil than the 
permanent barrier its mismanagement has probably produced against 
the creation of any similar institution. 

The honor and pecuniary prosperity of his bank should constitute 
the paramount motive of every banking operation. A violation of 
this principle produced, in the year eighteen hundred and thirty- 
seven, a suspension of specie payments, which was visited on bank 
stockholders by a legislative prohibition of dividends, and visited 
on banks and bankers by a general obloquy. The banks suspended 
that the debtors of the bank might not suspend : or worse, the 
banks suspended that the debtors might be spared the pecuniary 
loss that would have resulted from paying their bank debts. A con- 
duct so suicidal was probably fostered by the pernicious union, in 
one person, of bank director and bank debtor, a union from which 
our banks are never wholly exempt ; nor are they always exempt 
from the same union, still more pernicious, in bank presidents and 
cashiers. With this inherent defect in the organization of our 
banks, we can the more readily understand why, in 1837, "the banks 
assumed dishonor to -shield their debtors, and why the dishonor 
was continued for some more than a year in our State, and longer 
in others ; and would have continued longer in ours, but from a re- 
fusal of its further tolerance by the legislature. 

Every suspension of specie payments might have been prevented, 
had the bankers performed their duty to their respective banks, by 
prudence in the quality of their loans, and vigor in the enforce- 
ment of payments. No proof of this can be more convincing than 
the successfully sustained refusal of the Union Bank of New York 
to unite in the specie suspension of the year eighteen hundred and 
thirteen. All the banks, also, of New England preserved specie pay- 
ments. We admit that, had all the banks of the Union refused 
to suspend payments in 1813, 1819 and 1837, business would have 
severely suffered ; but this is a consideration for the legislature, and 
not for the banks. They are creations of the law, and should 
obey their creator. In England, during its struggle with Napoleon, 
the Government prohibited specie payments by the Bank of Eng- 
land, when the suspension was deemed publicly useful. The suspen- 
sion continued for twenty years, but the bank incurred thereby no 
disgrace, for it obeyed the law. 

The subordination of the honor and interests of a bank to the 
avarice or necessities of its managers, or dealers of any description, 
is productive, not of suspensions only, but of every disaster which 
usually befalls banks ; and unless such a subordination can be pre- 
vented by the officer who acts specially as a banker, no man who 
respects himself should continue in the position, when he discovers 



28 PRACTICAL BANKING. 

that such a subordination is in progress. The owner of a steam 
engine regulates his business by the capacity of his engine, but 
should he regulate it by the necessities of his customers, he would 
probably burst his boiler. A shipowner regulates his freight by the 
tonnage of his ship ; a contrary course would sink it. So every 
bank possesses a definite capacity for expansion by which bank 
dealers can regulate their business ; but, when a bank regulates its 
expansion by the wants of its dealers, or the persuasion of friend- 
ship, it will probably explode, or be otherwise unprofitable to its 
stockholders. 

Banks charge for the use of money no more than the use is 
worth. Nothing is added for risk, and thereby money-lending dif- 
fers from all other business that involves hazard. A great dispro- 
portion exists also between the amount hazarded by any loan, and 
the amount gained. The loan of a thousand dollars for sixty 
days involves the possible loss of a thousand dollars, without the 
possibility of a greater gain than some ten dollars. Banks, there- 
fore, never regularly lend money, without receiving the security of 
more than one person who is deemed safe for the debt ; and a 
good banker will err on the side of excessive security, rather 
than accept security whose sufficiency may reasonably be ques- 
tioned. In the country, two endorsers are usually required on every 
note that is discounted ; but in cities, where discounts are made 
for shorter periods than in the country, one endorser is more usual 
than two. 

Independently of the wealth of the endorser, the banks derive 
from him a security founded on the natural desire of every bor- 
rower to protect his friends, should insolvency occur to the bor- 
rower during the pendency of the bank loan. An endorser, will, 
also, usually foresee earlier than the bank when mischances threaten 
the borrower, and when appeals for protection should be made. To 
derive these benefits from endorsers, they should be disconnected in 
business from the borrower, so as not to be involved in his calam- 
ities ; hence, such disconnection is always one of the circumstances 
from which a banker judges of the sufficiency of any proffered en- 
dorser. Relationship of either consanguinity or affinity, between a 
debtor and his sureties, sharpens usually the desire of the debtor 
to protect his endorser; while again such relationship facilitates the 
concealment of a common pecuniary interest in enterprises, and fa- 
cilitates collusions against the bank in times of disaster, that may 
more than counterbalance the benefits expected by the bank from 
the relationship. 

The more lax the morality is of a borrower^ the less will he prob- 
ably feel the obligation to protect his endorsers ; and the more lax 
the morality is of an endorser, the more will he struggle against 
the surrender of his property to pay an unprotected endorsement. 



THE PRESIDENT. 29 

As a general result, however, debts are rarely collectable from the 
property of an endorser, unless his property very greatly over-bal- 
ances the amount of his endorsement. Instances are continually 
occurring where an endorser who has become liable for a bad debt 
which his property could pay, and leave him a surplus, will ruin 
himself in successfully preventing the application of his property 
to the debt in question. Hence, when a debt is contracted wholly 
on the property of the endorser, the debt will not be safe unless it 
is small in comparison with the wealth of the endorser. 

Men who are prone to extravagance in their domestic or per- 
sonal expenditures rarely possess the amount of property they are 
reputed to possess. Men expend to be thought rich more frequently 
than they expend by reason of being rich. The rich are usually 
more inclined to parsimony than expenditure. Any way, persons 
who practice parsimony are in the way of becoming rich, whatever 
may be their present poverty; while persons who are profuse in 
expenditures are in the way of becoming poor, though they may 
possess a present opulence. 

A man who transacts a regular business in a regular way is not 
liable to sudden fluctuations in his pecuniary solvency; but when 
a man's business is novel, and its results are untried, or when its 
results are frequently disastrous, the banker who grants him loans 
assumes some of the hazards and uncertainties of the business. 

When money is to be invested in the purchase of merchandise, 
cattle, flour, or other property in the regular course of the borrow- 
er's business, the investment yields to the borrower a means of re- 
payment ; nothing is hazarded but ordinary integrity, and ordinary 
exemption from disasters ; but when the borrowed money is to pay 
some pre-existing debt, none of the foregoing securities apply, and, 
possibly, you are merely taking a thorn out of another person's 
side, to place it in your own. 

Notes which a man receives, on the sale of property in his ordi- 
nary business, are termed business notes. The owner, having re- 
ceived them as money, had satisfied himself of their safety ; hence, 
when they are offered to a banker by a prudent man of business, 
they possess an inherent evidence of value. They were given also 
for property that will, in the ordinary course of business, furnish 
the means by which the notes may be paid ; and thus they possess 
an additional ingredient of safety. Kindred to such notes are drafts, 
which a man draws on a consignee to whom property has been 
forwarded for sale. If the consignee be a prudent man (the con- 
signor must deem him prudent or he would not trust to him the 
property) he will not accept unless the property forwarded is 
equivalent in value to the amount of the acceptance. The prop- 
erty, therefore, will pay the acceptance, and while the property re- 
mains unsold, it constitutes an equitable pledge for ultimate pay- 



3<D PRACTICAL BANKING. 

ment. A country banker, however, will usually be benefited, in a 
long 'course of business, by never loaning on city names without 
a reliable country endorser or maker, or both ; for nothing is usu- 
ally more unreliable than the reputed solvency of the merchants of 
large cities. 

A factor will sometimes accept in confidence that the drawer will 
supply him with funds in time to pay the acceptance. This will not 
constitute a worse security than an ordinary accommodation en- 
dorsement ; but the transaction lacks the reliability and security 
that are consequent to the acceptor's possession of consignments in 
advance of his acceptance, and so far as the nature of the acceptance 
is concealed, the ostensible character of the paper will give it a fic- 
titious security. 

Notes and acceptances are often assimilated to the foregoing 
character to facilitate the procurement of loans. Two merchants 
will exchange notes, and offer each other's notes at different banks, 
as business paper. Such notes are peculiarly hazardous by reason 
that the insolvency of either of the parties will usually produce 
the insolvency of the other. Acceptances are exchanged in the 
same way, and possess the same element of danger. 

Sometimes a country merchant will draw on a merchant of New 
York, and obtain thereon a discount at some country bank. The 
draft will have some months to run before it will become payable; 
but when it is payable, the New York merchant will obtain the 
means of payment by drawing on the country merchant, payable 
some months thereafter, and getting a discount thereon in New 
York. Such transactions are termed " kiting." They are practiced 
on notes as well as on drafts; and by persons residing in the same 
place as well as at distant places. When practiced by persons who 
live at a distance from each other, the operation is usually very ex- 
pensive, by incidental charges of exchange and collection. Bankers 
should suspect the solvency of parties who resort to expedients so 
commercially disreputable. The real character of the transactions 
is rarely avowed by the parties inculpated in the practices ; but a 
vigilant banker will soon suspect the operations, and not touch 
them unless the security can be made very ample. 

A country produce dealer, or manufacturer, will sometimes place 
in New York an agent on whom to draw ; or he may connect 
his operations with some person there of no capital, whom he will 
use as an acceptor. Such acceptances are no better than the note 
of the country dealer. They constitute, moreover, a hazardous class 
of paper, as you may rely somewhat on an assumed capital in the 
acceptors. Such methods are rarely practiced except by persons 
who want to extend their operations beyond a limit to which a real 
consignee would restrict them. No prudential limit exists with the 
dummy acceptor, hence, the drawer is able to carry his operations 



THE PRESIDENT. 3 1 

to an extent unlimited, except by his own will, or his ability to 
find lenders ; and men thus predisposed, and supplied with the 
requisite machinery, usually extend their speculations till they are 
overwhelmed in ruin. 

Notes and drafts are often made to be sold at a usurious dis- 
count, by parties ostensibly solvent, but who are struggling to pur- 
chase a ti-ansient respite from bankruptcy, or to amend their 
fortunes by desperate enterprises. Banks are, therefore, usually re- 
luctant to discount paper offered by brokers and other persons who 
are known to practice usury ; for though usury laws have been 
greatly modified within a few years, yet no bank wishes to take 
paper which may form the subject of a lawsuit. In many places 
the defence of usury is said to be so discreditable that few men 
will avail themselves of it. In the country, people feel less fastid- 
ious in this respect, and any debt which can certainly be avoided 
by means of usury would be very apt to be uncollectable. 

But the avoidance of loss is only a negation of evil. To make 
gains is the proper business of a banker, and, as the principal 
source of legitimate gain is lending money, the bank must lend to 
the extent of its ability — erring on the side of repletion, rather 
than of inanition ; for a banker knows not how far his bank can 
bear extension till he tries ; hence, if timidity, indolence, or apathy, 
limits his loans in advance of necessity, he may injure the commu- 
nity by unnecessarily withholding pecuniary assistance, and injure the 
stockholders by unnecessarily abridging the profits. A banker must 
not, however, extend his loans regardless of the future, but, like a 
skillful mariner, he should see an approaching storm while it is an 
incipient breeze, and meanwhile carry all the sail that will not 
jeopardize the safety of his charge : governing his discounts, at all 
times, more by the condition of his funds, and his own prospective 
resources, than by any reputed scarcity or abundance of money in 
other places and in other banks. 

If a banker can make reasonably good profits on his capital with- 
out much expansion, he may keep more restricted in his loans 
than a banker should who is less favorably circumstanced. Every 
banker must, however, remember, that to be strong in funds and 
rich in profits are natural incompatibilities ; hence, the more money 
a banker wishes to make, the poorer in funds he must consent to 
become. In banking operations, as in most other, wisdom lies in 
a medium between extremes ; and if a banker can keep funds 
enough for practical safety, he had better forego excess of funds, 
and receive an equivalent in gains. Physicians say that the hu- 
man body can bear excess of food better than deficiency. The ex- 
cess can be discharged by cutaneous eruptions, as we see some- 
times in over-fed infants ; but deficiency of nourishment will not 
relieve itself; so in banking, a repletion of loans, if they are un- 



32 PRACTICAL BANKING. 

doubtedly solvent, prompt and short, will soon of themselves work 
a relief to the bank ; but a paucity of loans cannot, by any proc- 
ess of its own, cure the scant profits of the stockholders. Banks 
are rarely injured, therefore, by an excess of discounts. When banks 
fail, their disaster proceeds from the quality of their loans, not 
from the quantity. 

No banker should keep his funds inactive when no better ex- 
cuse exists therefor than that the business he can obtain is not 
so lucrative as the business of some other place, or as his own 
business was at some other period. The legal rate of interest is 
so high, that the voluntary forbearance of its reception for even a 
short period, is ordinarily a greater evil than the reception of any 
common description of solvent loans. Any way, a banker who 
keeps his funds inactive, to await the offer of loans more lucrative 
than simply the interest of money, should be well assured that the 
future loans will be sufficiently lucrative to compensate for the for- 
bearance. But no disadvantages of position must be deemed a 
sufficient apology for the assumption of hazardous loans. Whei* no 
safe busineiS offers, no business should be transacted by a banker 
who entertains a proper respect tor himself, or a proper feeling for 
his stockholders. Gains may be impossible, but losses are measur- 
ably avoidable. If any location presents the alternative of no busi- 
ness, or great hazards, a banker is accountable for the choice which 
he may make between the two alternatives; and he is accountable 
no further. 

But ordinarily every banker is presented with more business 
thin he can assume, and he is enabled to select the more profit- 
able and reject the less profitable. in speaking of the profits of 
banking, we mean gains that proceed from some other source 
than the interest allowed by law for the use of the money. These 
gains are derived most largely from circulation and deposits; hence 
the loans are advantageous to a bank, in proportion as they in- 
crease the circulation or deposits of the bank. Money is sometimes 
borrowed to pay debts to a neighboring bank, or to a person who 
keeps his money deposited in a neighboring bank. Such loans 
yield no profit to the lender except the interest on the loan ; hence 
they are not so profitable as loans to borrowers who will take 
bank notes of the lending bank, and circulate them over the 
country in the purchase of agricultural products. While the notes 
remain in circulation, the bank is receiving interest on them from 
the borrower — interest not for the loan of money, but for the loan 
by the bank of its promises to pay money when demanded. So, on 
a loan made by a bank to one of its depositing customers, the 
bank receives interest only on its promise to pay the borrowed 
money when the borrower saad irom t me to time draw for the 
same. And when a deposit is thus drawn from a bank, the draft 



THE PRESIDENT. 33 

is not necessarily paid in money, but in bank notes which may 
obtain a circulation. This advantage is a usual attendant of the 
deposits of some customers, and makes their accounts doubly bene- 
ficial to a bank. Whether a depositor asks for more loans than 
his deposit account entitles him to receive, is a question whose 
solution depends on whether the bank can lend all its money to 
better depositing customers, or more profitably use it in loans for 
circulation. A banker should, however, estimate liberally the merits 
which pertain to a steady customer; not deciding on any proposed 
loan by the amount of the proposer's deposit at the time of -the 
proposal, but his antecedent deposits, which were doubtless made 
in reliance on the bank for a fair reciprocity of benefits. Competi- 
tion for profitable customers exists among banks as eagerly as 
competition among borrowers for bank loans ; hence liberality 
to customers by a banker is as much a dictate of interest as of 
justice. 

Notes and time-drafts discounted by country banks, and payable 
in New York, Boston, Philadelphia, and other eastern places 
were payable in a currency whose value was enhanced by the 
rate of exchange, which existed in favor of the east and against 
the west. As country banks never allowed any premium in the 
-reception of such paper, the benefit of the exchange was a strong 
inducement to a country banker for preferring loans thus payable 
to loans payable at his own counter. Borrowers would often take 
advantage of this predilection, and make notes payable artificially at 
New York, as a means of obtaining a loan of a country banker. 
Notes thus made were rarely paid at maturity; hence, so far as a 
banker relied on their payment, and founded his business calcula- 
tions thereon, they were hurtful. To the extent that he colluded 
with the maker and supplied him with funds by which such note 
could be paid at New York, at a loss, to the maker, of the differ- 
ence in the rate of exchange, the transaction was unlawful. 

Banking is not exempt from the ordinary fatality which ever in 
a long course of business makes honesty the best policy. To gain 
unlawfully must also be a poor recommendation to a banker, with 
any thoughtful stockholder ; for if a man will collude to make dis- 
honest gains for his stockholders, what security can the stockholders 
possess that he will not collude against them, to make dishonest 
gains for himself? A country banker may properly discount a note 
payable in New York when the maker's business will make New 
York the most convenient place of payment, though the borrower's 
residence may be in the country : such is often the case with 
drovers, lumbermen, and some manufacturers. Transactions of this 
circuitous nature must, however, be spontaneous on the part of the 
borrower; for a note is usurious if, in addition to the receipt of 
legal interest, the banker superadds, as a condition of the loan, that 



34 PRACTICAL BANKING. 

it must be paid at a distant city, and consequently in a currency 
more valuable than that the lender received. But when such loans 
are legal, and possess the best commercial character for punctuality 
and security, they are not always so advantageous to the country 
bank as notes payable at the country bank, and connected with the 
circulation of bank notes or with deposits. The force of this re- 
mark can perhaps be better seen in what follows. 

Banks can usually make as many loans as they desire to borrow- 
ers who will use the loan in purchasing from the bank a draft on 
New York or other eastern city, whereby the bank will obtain a 
premium on the sale of the draft, in addition to the interest on 
the loan. The operation becomes peculiarly advantageous to the 
bank when the loan is itself payable in New York, for while the 
borrower pays, in such a transaction, say an eighth of one per cent. 
to the bank for a bank draft on New York, he subsequently repays 
in New York the borrowed money without receiving any return 
premium from the bank. But howsoever profitable such a trans- 
action seems, banks can rarely transact advantageously much of such 
business. Should the entire capital of a bank of three hundred 
thousand dollars be employed in discounting drafts on New York 
payable at three months from the time of discount, and should the 
bank pay therefor sight drafts on New York, charging for them a 
premium of a quarter of one per cent., the bank could not pay 
its stockholders above six per cent, the year in bank divi- 
dends. 

As every loan is usually attended with some advantage to the 
bank, in the ways we have explained, beyond the interest paid by 
the borrower, the sooner the loan is to be repaid to the bank, 
the more frequently will the bank be able to reloan the money, 
and obtain a repetition of the incidental advantages. 

Country banks being subject, at certain seasons, to a demand 
for currency, every judicious banker will endeavor to so select 
the loans which he makes during a year, that large amounts 
of them will become payable at the precise periods of the spring 
and fall when funds will be most needed. This is imitating the 
conduct of Pharaoh, who, during the years of plenty, accumulated 
provisions for the periods of apprehended famine. Many months 
of every year are months of plenty with every well-conducted 
bank. The paper which is selected for the future contingency will 
be useful in proportion to its reliability ; and paper payable in 
New York, or other eastern cities, may be more useful than any 
other. No rule of banking is more practically valuable than the 
foregoing. 

As banking is liable to panics and pressures which may arise 
without being preceded by any long premonitory symptoms, a banker 
must invest his funds in short loans, which measurably accomplish. 



THE PRESIDENT. 35 

the feat that is proverbially impossible, "to have a cake and eat 
it at the same time : " — that is, by means of short loans, the bank 
keeps its funds always available within a short period, and yet 
keeps them always loaned out on interest. The banks of large cities 
are able to make loans payable on demand, or in a few days' 
notice ; while country banks possess no such opportunities, but are 
able usually to deposit their spare funds in some bank in New 
York, subject to a repayment on demand, or on short notice ; and 
in the mean time to receive interest on the deposit. Experience, how- 
ever, has painfully demonstrated that the convenience of an inter- 
est-paying depository is not exempt from danger. 

What is every person's business is proverbially nobody's ; hence the 
safety of banks depends less on boards of directors than on some one 
person to whom the bank is specially confided. He is to be always 
present, and always responsible, in his feelings and in public estima- 
tion, for the prosperity of the bank; and for these services he 
ought to be well compensated, pecuniarily, so as to stimulate the 
faculties to their best efforts. We mistake human nature when we 
expect great efforts from any man, and supply no proper motive 
therefor. 

In large cities, discounts are generally made to persons who are 
known personally or by reputation to some of the directors, but in 
country banking, the borrowers and their endorsers in many cases 
are residents of remote places, and unknown, personally, in the lo- 
cality cf the bank. A country banker, who should insist on a per- 
sonal acquaintance with the makers and endorsers of all the paper he 
desired to buy, might find his business restricted to a circle too small 
for the employment of his capital. In vain will such a banker in- 
sist that he ought not to make loans to persons of whom he 
possesses no knowledge; the answer will be that he should acquire 
the knowledge. It is indispensable to his bank. He is bound to 
know a sufficient number of persons to enable his bank to em- 
ploy its capital advantageously. Every note, therefore, that he re- 
jects for want of knowledge, is ostensibly a slight reproach on him, 
in cases where he has not a sufficiency of known borrowers ;' while 
every note that he rejects or accepts by means of his knowledge of 
the parties is a tribute to his industry and vigilance. 

The preceding remarks will show why country banks are speci- 
ally liable to loss from forgeries. Moreover, many of the makers 
and endorsers who deal with country banks write poorly, and their 
signatures bear but little internal evidence of genuineness, even 
when you are partially acquainted with the parties ; for the same 
person will write differently at different times, and especially with 
different pens and different qualities of ink ; and he varies these 
continually. Still, the greater the danger, the greater is the caution 
which the banker must exercise. He must bring to the difficulty 



36 PRACTICAL BANKING. 

all the scrutiny of which the case is susceptible, or he will not 
stand excused for consequent losses. A comparison of any proffered 
signature with one that is genuine, though encumbered with difficul- 
ties as above explained, is a guide that should not be neglected ; and 
it is often the best that can be resorted to. Banks, therefore, 
keep a book in which every person who deals with the bank 
inserts his name. The signatures should be placed alphabetically, to 
facilitate a future reference to them. The endorsers may never visit 
the bank ; but, when a note is paid, the names of the endorsers 
may, with the consent of the maker, be cut from the note, and 
pasted into the book, in their proper order. In no very long time, 
a mass of autographs may be thus collected. Some names on notes 
may not be deserving of such preservation ; and in this particular, 
as in all others, the banker must exercise his judgment. 

The law in relation to endorsers renders them liable only on due 
notice of the non-payment of the endorsed note. This avenue of 
loss is felt but seldom in large cities, but in the country it pro- 
duces constant danger. A country banker, therefore, must know 
where endorsers reside, and usually the information can be obtained 
most readily when each note is discounted, and from the person 
who brings it for discount. The information can be written on the 
note under the name of the endorser, and it will serve as a direc- 
tion to the notary public, should the note be protested for non- 
payment. The laws of New York required, formerly, that the notice 
of non-payment should be forwarded by mail to the post-office 
nearest to the residence of the endorser. This imposed on the 
banker a knowledge of postal locations that added much to the 
difficulty of his position. The law has since meliorated the diffi- 
culty by rendering a notice sufficient if directed to the town in 
which an endorser resides. 

As a banker will lend to the extent of his ability, that he may 
make for his bank all the gains in his power, he must be well ac- 
quainted with the pecuniary means and abilities of his bank. He 
can keep on his table a summary showing the precise amount of 
his funds and where they are situated, and of what they are com- 
posed ; also an aggregate of his various liabilities. Such a sum- 
mary, when corrected daily, or more frequently if necessary, will 
constitute a chart by which he will be able to judge whether he 
can lend, or whether he must retrench existing loans. The funds 
that will be adequate to any given amount of liability a banker 
must learn by experience, embarrassed as he will be by a want of 
uniformity in the results of his experience, at different periods. 
Every bank must be liable, momentarily, to demands for payment 
of its deposits (and bank notes, if it issues any) beyond its pres- 
ent funds. Practically, however, if a banker has funds enough, day 
by day, to meet the requirements of the day, he has funds enough. 



THE PRESIDENT. 37 

"Sufficient for the day is the evil thereof," is a proverb peculiarly 
applicable in banking. 

But a banker must not be satisfied by knowing that his funds 
of to-day will be sufficient for the wants of the day. He must 
possess a reasonable assurance that the same will be his position 
"to-morrow, and to-morrow, to the end of time." To gain this as- 
surance, he ought to keep also before him one or more lists in detail 
of his prospective resources, showing what notes and acceptances 
will be payable to the bank daily for some weeks or months ahead, 
and where they are payable. With such lists, and a knowledge of 
the reality of the paper thus going onward to maturity, he will 
be able to judge whether his prospective resources will need the 
aid of his existing unemployed funds ; or whether he may loan 
them, and even extend his liabilities in anticipation of a prospective 
surplusage of resources. 

By means of such lists as we have just described, should a banker 
discover that his existing resources will be small during, say, the 
month of June, he can aid the defect by discounting in the pre- 
ceding May, April or March, paper that will mature in June. By 
thus regulating, prospectively, his future resources, he can be always 
provided with funds. And that a banker may, at all times, be 
master of his resources, he should never promise prospective loans, 
or make loans with any promise of their renewal. The more he 
keeps uncommitted, the better will he be able to accommodate 
himself to future exigencies. Banking is subject to sufficient uncer- 
tainties, without unnecessarily aggravating them by prospective agree- 
ments. A banker may be unable to fulfill such pledges, and be thus 
compelled to falsify his promises ; or, he may be able to fulfill them 
only at a sacrifice of the interests of his bank, and thus be placed 
in the unwholesome dilemma of injuring his personal character, or 
of preventing the injury only by a sacrifice of the interests of his 
bank. 

A banker is compelled to employ officers to whom he intrusts 
his vaults and their contents. Robberies are often committed by 
persons thus intrusted, and some such robberies have remained long 
concealed. The banker cannot be responsible for all such occur- 
rences ; still, vigilance can accomplish much in the way of security 
against mischances, and the banker is responsible for the exercise 
of all practicable vigilance. Robberies and frauds possess usually 
some discoverable concomitants. No man plunders to accumulate 
property that is not to be used. Its use, therefore, which can rarely 
be wholly concealed, is a clue which a vigilant eye can trace to 
the plunderer. Nearly every plunderer is a prodigal, and may 
thereby be detected ; nearly every plunderer is needy, and should 
therefore be suspected. The banker should know human nature, 
and be able to trace effects to their causes, and to deduce effects 



38 PRACTICAL BANKING. 

from causes. To this extent he is answerable for the safety of his 
bank. The sentinel whose post happens to be surprised by an 
enemy may escape punishment as a criminal, but he can rarely 
gain commendation for vigilance, or escape censure for carelessness. 

To permit overdrafts is to make loans without endorsers, and 
without the payment of interest. It is, moreover, to empower a 
dealer to control your resources. No mode of lending money can 
be more inconsistent with all safe banking, and it should never be 
permitted. Still, every man who keeps, a bank account can draw 
checks for an amount exceeding his balance in bank; nor can the 
banker personally supervise the payment of checks. A vigilant 
banker will, however, provide vigilant subordinate officers: "The eye 
of the master maketh diligent," say the Scriptures. An intelligent 
and careful teller will soon learn whom he must watch ; but, after 
all precautions, an overdraft may be perpetrated, and, whether by 
accident or design, the bookkeeper should forthwith report to the 
banker the occurrence, and he must act thereon as his judgment 
shall deem proper. 

No system of banking can escape the casualty of doubtful debts. 
Usually the most favorable time to coerce payments is when they 
first become payable. Then the debtor has expected to pay, and if 
he is then in default no certain dependence can be made on his 
subsequent promises. He is also usually less offended by a legal en- 
forcement of payments when they are promptly enforced, and when 
he knows the creditor is disappointed by the default, than he is 
after the default has been tacitly acquiesced in by a long forbear- 
ance of coercive measures. Additional security, when necessary, can 
also be more readily obtained at the time of the default, than it 
can after the debtor has become reconciled by time to his dishon- 
orable position. His credit is better now than it will be subse- 
quently, and he can more readily now than subsequently obtain re- 
sponsible endorsers. In relation to the extension of time on re- 
ceiving additional security on a weak debt, any extension that is 
productive of security is a less banking evil than insecurity; just 
as any protraction of disease that results in health is a less physi- 
cal evil than death. 

A banker will be often subjected to importunity by persons who 
will desire a deviation from the usual modes of banking. They 
will propose a relaxation of good rules, and allege therefor some 
pressing emergency; but if the relaxation involves any insecurity, any 
violation of law or of official duty, the banker should never sub- 
mit, even when the result may promise unusual lucrativeness to his 
bank. While a banker adheres with regularity to known forms of 
business and settled principles, Providence is a guarantee for his 
success ; but when he deviates from these Providence is almost 
equally a guarantee of disaster, both personal and official. 



THE PRESIDENT. 39 

Banking is a business, and should be reciprocally beneficial to 
the borrower and the lender. When a borrower's business cannot 
yield the requisite reciprocity of benefit, he will often attempt to 
mend the defect by pertinacity of application, and by persuasions 
addressed to the directors of a bank personally, as well as to the 
banker ; and by servility and sycophancy. Such conduct is a strong 
symptom of some latent defect in the applicant's pecuniary posi- 
tion, and the appliances should strengthen a banker in his refusal 
of loans rather than facilitate their application. Loans thus obtained 
rarely result favorably to the lender. 

No man is safe when engaged in a speculation, especially when 
the price of the article that he purchases is above the usual cost 
of its production. The speculator's intellect soon loses its control 
over him and he will be controlled by his feelings, and they are 
unnaturally excited. He becomes a monomaniac in the particular 
concern with which he is engaged. He will increase his purchases 
beyond all moderation, and at prices which he himself, when he 
commenced his purchases, would have deemed ruinous. Many 
banks are destroyed by such speculators. A bank will loan to them 
till its safety seems to require that the speculation must be up- 
held against a falling market ; and the effort is made till the con- 
tinued decline in prices ruins both speculators and sustaining 
bank. 

When a debtor arrives at a certain magnitude of indebtedness 
he becomes the master of his creditor, who is somewhat in the po- 
sition of Jonah when swallowed by the whale. The debtor can say 
to a bank thus circumstanced that to stop discounting for him will 
ruin him, and that his ruin will involve a loss of the existing debt. 
No prudent banker will be placed in such a position, but should 
any banker lapse into so sad an error, he will rarely mend his po- 
sition by yielding to the proposed necessity for further loans. He 
had better brave. the existing evil than yield to an argument which, 
if already too potent to be disregarded, will acquire additional 
strength by every further discount, and render his inevitable fall 
more disastrous to his stockholders and more disreputable to him- 
self. 

With respect to his contingent expenses, the more a banker can 
reduce their amount, the more easily will he make reasonable divi- 
dends of profit among his stockholders, without an undue expan- 
sion of loans and consequent anxiety to himself. The income of a 
bank is only an aggregate of petty accumulations. Every unnecessary 
expenditure of one hundred dollars by the bank will nullify the in- 
terest on four ninety-day loans of fifteen hundred dollars each — 
loans often withheld from meritorious claimants. The economy of 
which we speak is not any unjust abridgement of properly remuner- 
ative salaries to faithful officers and servants, who should, however, 



40 PRACTICAL BANKING. 

labor diligently and perseveringly in their vocations, as men labor 
in other employments, so that the bank may economize in the num- 
ber of its agents, instead of economizing in the magnitude of their 
salaries. A hundred dollars, or a thousand, when contrasted with 
the capital of a bank, may seem a small matter, and probably bank 
expenditures are often incurred under such a contrast; but the true 
contrast lies between the expenditure and the net percentage of a 
bank's gains. A bank whose net income will not exceed the legal 
rate of interest possesses no fund from which to squander. And 
banks often expend an unduly large part of their capital in archi- 
tecture to ornament the city of their location, or to rival some 
neighboring institution, whose extravagance ought to be shunned, 
not followed. No person has yet shown why banks should be built 
like palaces, while the owners of the banks are to a good extent 
poor, and live humbly. The custom is perhaps founded on the de- 
lusion of deeming a great capital identical with great wealth. When 
several men, for any purposes of gain, unite their several small capi- 
tals, they may well need a larger building and more agents than 
each man would require were he unassociated ; but that the asso- 
ciation can afford an organization increased in splendor as much 
as in magnitude, is a fallacy somewhat analogous to the blunder 
of the Irishman, who, hearing that his friend intended to walk 
forty miles during a day, said that he would walk with him, and 
then they could walk eighty miles. 

When solicited by a neighbor or a friend, few men possess vigor 
enough, or conscientiousness enough, to refuse a recommendation, 
or to state therein all they suspect or apprehend. They will studi- 
ously endeavor not to make themselves pecuniarily responsible by 
any palpable misrepresentation ; hence they will so qualify the rec- 
ommendation that it will admit of a construction consistent with 
truth ; but the qualification will be so enigmatical or subtle that 
the banker will not interpret it as the recommender will show sub- 
sequently it ought to have been interpreted. Besides, the man who 
merely recommends a loan acts under circumstances that are much 
less favorable to caution than the man who is to lend. When we 
are in the act of making a loan, our organization presents the 
danger with a vividness that is not excited by the act of recommend- 
ing. To believe speculatively that we will suffer the extraction of a 
tooth, is a wholly different matter from sitting down and submit- 
ting to the operation. Suicide would be far more common than 
it is, if a man could feel, when the act was to be performed, as 
he feels when he only prospectively resolves on performing it. This 
preservative process of nature no banker should disregard by sub- 
stituting any «nan's recommendation for the scrutiny of his own 
feelings and judgment at the time when the loan is to be con- 
summated ; though he may well give to recommendations all the 



THE PRESIDENT. 41 

respect which his knowledge of the recommender may properly 
deserve. 

By acting according to the dictates of his own judgment, a man 
strengthens his own judgment as he proceeds ; while a man who 
subordinates his judgment to other men's is continually debilitating 
his own. Nothing also is more fallacious than the principle on 
which we ordinarily defer to the decision of a multitude of coun- 
selors. If fifty men pull together at a cable, the pull will com- 
bine the strength of one man multiplied by fifty ; but if fifty men 
deliberate on any subject, the result is not the wisdom of one man 
multiplied by fifty, but at most the wisdom of the wisest man of 
the assemblage ; just as fifty men, when they look at any object, 
can see only what can be seen by the sharpest single vision of the 
group ; they cannot combine their vision and make thereof a lens 
as powerful as the sight of one man multiplied by fifty. A banker 
may, therefore, well resort to other men for information, but he 
may differ from them all, and still be right; any way, if he perform 
the dictates of his own judgment, he performs all that duty re- 
quires ; if he act otherwise, he performs less than his duty. Let 
the counsel of your own heart stand, says the Bible ; and, by way 
of encouragement, it adds, that a man can see more of what con- 
cerns himself, than seven watchmen on a high tower. 

As virtue's strongest guarantee is an exception from all motive to 
commit evil, a banker must avoid all engagements that may make 
him needy. If he wants to be more than a banker, he should 
cease to be a banker. Should he discover in himself a growing 
tendency to irritability, which his position is apt to engender, let 
him resist it as injurious to his bank and his peace; and if he 
should find himself popular, let him examine whether it proceeds 
from the due discharge of his duties. A country banker was some 
few years ago dismissed from a bank which he had almost ruined, 
and was immediately tendered an honorary public dinner by the 
citizens of his village, into whose favor his misdeeds had unwisely 
ingratiated him. The service of massive plate that was given to a 
president of the old United States Bank was in reward of com- 
pliances which soon after involved in disaster every commercial 
interest of our country. Could we trace actions to their source, 
these mistakes of popular gratitude would never occur. The 
moroseness that we abhor proceeds often from a sensitiveness 
that is annoyed at being unable to oblige ; while the amiability 
that is applauded proceeds from an imbecility that knows not how 
to refuse. 

A banker should possess a sufficiency of legal knowledge to make 
him suspect what may be defects in proffered securities, so as to 
submit his doubts to authorized counselors. He must, in all things, 
be eminently practical. Every man can tell an obviously insufficient 



42 PRACTICAL BANKING. 

security, and an obviously abundant security ; but neither of these 
constitute any large portion of the loans that are offered to a 
banker. Security practically sufficient for the occasion is all that a 
banker can obtain for the greater number of the loans he must 
make. If he must err in his judgment of securities, he had better 
reject fifty good loans than make one bad debt;, but he must en- 
deavor not to err on the extreme of caution or the extreme of tem- 
erity; and his tact in these particulars will, more than any other, 
constitute the criterion of his merits as a banker. 



DIRECTORS MEETINGS AND DISCOUNTING. 



CHAPTER VII. 

DIRECTORS' MEETINGS AND DISCOUNTING. 

We may properly open this chapter with some general remarks 
concerning the duties of bank directors. Whatever may be their 
shortcomings they usually begin their duties with honest intentions 
toward their stockholders and the public. The misconduct which 
may supervene, will proceed from temptations incident to their 
office, and perhaps from the absence of well-digested notions of 
their duties. Some years ago, a person was asked whether he would 
accept the office, then vacant, of director in a bank. After delib- 
erating, he replied, that as the office might result in some benefit 
to him, he would accept. When the answer was reported to the 
Board who were to fill the vacancy, they refused to appoint him, 
lest he should sit at the Board mousing to catch something bene- 
ficial to himself, while they wanted a director who would accept 
office to benefit the bank. A man ought to watch his own inter- 
est, when conducting his own affairs, but when he is acting offici- 
ally, he should lose himself in his public duties. We expect a 
soldier to sacrifice his life, if necessary, to the discharge of his duty, 
and we should condemn him for professing a less self-denying 
creed, how much soever our knowledge of human fallibility might 
induce us to pardon his short-comings, when death should obstruct 
his path. Fortunately the performance of bank duties will peril 
only some forbearance from pecuniary acquisitions, and our creed 
ought to be self-denying enough to renounce these, instead of 
avowing them to be the motive of our services ; nor is the prin- 
ciple new. The law will not permit a trustee to derive any indi- 
rect benefit from his trust, or any judge or juror to decide in his 
own controversies ; and the State of New York has, in its Constitu- 
tion, consecrated the principle, by prohibiting our legislators from 
regulating their own compensation, or even the number of days 
which shall be occupied in legislative duties. In some cities, also, 
no civic officer can become legally interested in any municipal con- 
tract ; and who censures not some recent high officers of our Na- 
tional Government, for participating in a private claim, which they 
officially aided in adjusting and paying. Thus thinking, the presi- 
dent of a large railroad corporation of New York refused to sup- 



44 PRACTICAL BANKING. 

ply iron for his road, though his associate directors, with the com- 
plaisance which is as vicious as it is common, offered him the con- 
tract. In this case, no contractor could have been more eligible^ 
but the rejector established a precedent that is more profitable for 
his corporation than the money it would have saved in purchasing 
the iron of him. 

The remuneration of bank directors, consists, too often, in an 
indefinite claim for bank loans. This claim led formerly to so 
great an absorption of the funds of country banks, whose capitals 
are small, that a law was enacted by the New York Legislature 
interdicting bank directors* from engrossing, directly or indirectly, 
more than a third part of the capital of their respective banks ; a 
quota which is, in some banks, divided equally among the directors, 
irrespective of any business merits of the borrower.! This mode of 
compensation, when founded on ample security for the borrowed 
money, and when the amount taken, directly or indirectly, is limited 
to the legal quota, may, in small banks, constitute a less objectionable 
mode of remunerating directors than any other indirect mode, or than 
most other direct modes. A man may, however, very properly refuse 
the office of bank director, unless he can obtain for his services a sat- 
isfactory pecuniary compensation ; and banks must comply with such 
a requirement, if suitable men are not otherwise obtainable ; but such 
a contingency promises to be remote, under the desire for acci- 
dental distinctions by our citizens, consequent, probably, on their 
legal equality. But when such a contingency shall occur, a direct 
compensation will generally be purer than any indirect, and a defi- 
nite compensation cheaper than an indefinite ; and usually money is 
the most economical mode of paying for services that are not to be 
deemed honorary. 

The law usually regards bank directors as an entirety under the 
title of a Board. The duties and powers which are usually conferred 
on the board by the National and State laws may be classed as 
legislative, supervisory, and appointing. The legislative power con- 
sists in creating such offices as the business of the bank shall 
render necessary, regulating their duties and salaries ; directing the 
modes in which the bank shall be conducted, and generally all that 
pertains to the management of the stock, property, and effects of 
the corporation. The appointing power consists in selecting proper 
incumbents for the created offices ; while the supervisory power is 
indicated by all the foregoing, and by the ability to 'dismiss the 
appointees at pleasure. But a man cannot properly supervise 

* This law, like most other legal regulations of bank directors, was made before the 
existence of banking associations ; hence the directors of such associations are not included 
therein. 

t The National Banking Law limits the amount that may be loaned to any applicant. 
See Chapter III. 



directors' meetings and discounting. 45 

himself in the performance of public services, nor limit and regulate 
their scope and extent, nor fix his compensation therefor; hence 
the powers of the board can be exercised efficiently only on per- 
sons who are not members of the board. Nor is the inexpediency of 
uniting in the same person the duties of grantor and grantee, 
master and servant, agent and principal, a contrivance of man ; it 
proceeds from his organization. No person can sit at a board of 
directors without observing that agents who are not directors, are 
supervised moie freely than agents who are directors. A practical 
admission of this is evinced by some discount boards, who, in decid- 
ing on paper offered by directors, vote by a species of ballot, while 
in other boards, the offered notes are passed under the table, from 
seat to seat; and a note is deemed rejected, if, in its transit, some 
director has secretly folded down one of its corners. Had the United 
States Bank been supervised by a board disconnected from execu- 
tive duties, it would not have permitted its chief officer to per- 
severe in the measures which ultimately ruined the corporation, 
though its capital was thirty-five millions of dollars. Even the 
separation of a legislature into two chambers, checks the esprit du 
corps, and pride of opinion which would urge one chamber into 
extremes, with no means of extrication from a false position. A 
separation operates like the break of continuity in an electric tele- 
graph, arresting a common sympathy, passion, or prejudice, which, 
in a single chamber, rushes irresistibly to its object. Still, in many 
banks (the Bank of England included) the president (entitled 
governor in the Bank of England) is the chief executive officer, 
as well as head of the legislative department. The Bank of Eng- 
land is, however, controlled by twenty-four directors, the largeness 
of which number naturally mitigates the influence of the members 
iudividually, and hence diminishes ratably the objection against its 
executive organization. Such an organization may operate well, 
where the board consists of a small number of members, yet the 
good is not a consequence of the organization, but in despite 
thereof ; for, whatever weakens the power of supervision, must di- 
minish its benefits. The joint-stock banks of England are all con- 
trolled by officers called managers, and who are not members of 
the board, though they sit thereat ex officio for mutual explanation 
and instruction. 

That the board should legislate, supervise and appoint, but not 
execute, occasioned probably the exclusion from the directorship 
that early prevailed, and widely continues, of the person who occu- 
pies the office of cashier, and who, with us, was once almost 
universally the chief executive bank officer. But the executive 
power, located, should center in only one person ; a divided re- 
sponsibility creating necessarily a divided vigilance. Thirteen men 
acting as an executive will not produce the vigilance of one man 



46 PRACTICAL RANKING. 

multiplied by thirteen, but rather the vigilance of one man divided 
by thirteen. The inspection of a picture by ten thousand promis- 
cuous men will not detect as many imperfections in it as the 
scrutiny of one person, intent on discovering to the extent of his 
utmost vigilance ; hence, large assemblies refer every investigation 
to a small committee, the chairman of which is expected to as- 
sume the responsibility of the examination, while the other mem- 
bers are more supervisors than actors. Here, again, as in most other 
modes which business assumes by chance apparently, our organiza- 
tion dictates the mode. When, therefore, we want an army of the 
highest efficiency, we possess no alternative but to intrust it to a 
single commander-in-chief; and if we want a bank of the highest 
efficiency, as respects safety and productiveness, we must intrust it 
to a single executive, under any title we please; but to one man, 
who will make the bank the focus of his aspirations, and know 
that on his prudence and success will depend the character he 
most affects, and the duration of his office, with all its valued as- 
sociations and consequences. 

If the proposed organization is the best that can be devised for 
a bank, the magnitude of power to be delegated is no proper ar- 
gument against its delegation, but only a motive for prudence in 
selecting the delegate. A man of known skill and established fidel- 
ity is not always procurable for the proposed duties, especially by 
small banks that cannot render available a breach of the tenth 
commandment. But, providentially, the world is not so dependent on 
a few eminent men, as their self-love and our idolatry may believe. 
Every well-organized person possesses an aptitude to grow to the 
stature of the station in which circumstances may place him, and 
some of the most successful bankers of our State acquired their 
skill after they became bankers. The like principle is discoverable 
in all occupations, the highest not excepted. Few of our judges, 
generals, diplomatists, legislators, or civil executives were accom- 
plished in their vocation before they became invested therewith. 
Skill is consequent in some degree to station and its excitement, 
though a vulgar error expects (what is impossible) that official dex- 
terity and competence should be possessed in advance. 

On the chief executive should be devolved the responsibility of 
providing funds to meet the exigencies of the bank; hence, he is 
entitled to dictate whether loans shall be granted or withheld, and 
the length of credit that shall be accorded to the borrowers re- 
spectively. With him rests also a knowledge of the banking value 
of each customer; he should, therefore, be permitted to select from 
applicants the persons to whom alone loans shall be granted. The 
responsibility should also be cast on him of making the bank pe- 
cuniarily profitable to the stockholders ; hence, he will be stimulated 
to obtain good accounts, and to extend business to the utmost ca- 



DIRECTORS' MEETINGS AND DISCOUNTING. 47 

pacity that his judgment will justify. On his untiring vigilance 
should be reposed the safety of the capital ; hence, no loans should 
be granted with whose security he is dissatisfied, nor any except 
those with which he is satisfied — even the improper negation of a 
loan being usually a small evil to the bank, how important soever 
it may be to the proposer. The Bank of England, with a capital 
of about (including surplus) $90,000,000, intrusts the loaning thereof 
to the governor alone. He |ias under him a sub-governor, selected 
from the directors, while an executive committee, designated by the 
board, may be consulted by him ; but the committee employs itself 
in digesting matters for the action of the court of directors, rather 
than in clogging the proceedings and diminishing the discretion of the 
governor. All the joint-stock banks of England are organized with 
a like self-depending executive, under the name of general manager, 
and a bank organized thus to grant loans at all times, during its 
business hours, will present a great inducement to customers over 
a bank whose discounts are accorded at only stated days, and after 
a protracted deliberation by directors — loans being often useful only 
when obtained promptly. Even the due protesting of dishonored 
paper, and notifying of endorsers — the enforcement of payment, or 
the obtainment of security on debts which prove to be unsafe, 
will all wholesomely fall under the control of the chief executive, 
by reason that the vigilance of one person can control them bet- 
ter than a divided vigilance ; and that the debts having come into 
the bank by his agency, his self-love is interested in their collect- 
ability. He must feel a like responsibility against losses by forgery, 
overdrawn accounts, the depredation of burglars, and the pecula- 
tion of subalterns. To secure in the highest degree his vigilance in 
these particulars, he should be intrusted with the selection of all 
subordinate agents, even of the notary and attorneys. At least 
none should be appointed or retained with whom he is not satis- 
fied. His self-respect cannot be too much fostered by the board, 
and no measure should be enforced, and no loans granted, which 
can wound his sensibility, or diminish his influence with his subor- 
dinates or the customers of the bank. The more he can thus be 
brought to identify himself with the bank, the more the bank will 
be exempt from the disadvantages which make corporations con- 
trast unfavorably with private establishments, and which a proverb 
alludes to in saying that what is every man's business is nobody's. 
So great is the assimilation to their bank which some managers 
attain, that a poignancy of solicitude in relation to the debts of the 
bank, the preservation of its credit and the productiveness of its 
capital become the greatest evils of their position, especially when 
they are predisposed to morbid nervousness, which, with disease of 
the heart, their position induces and fosters. Such a man will ob- 
tain from his board all the information it can yield him in rela- 



48 PRACTICAL BANKING. 

tion to the pecuniary responsibility of his dealers; and the directors 
should give him their opinion — not mandatory, to relieve his re- 
sponsibility, but to inform his judgment, though he will soon dis- 
cover that his only safe guide will consist of his feelings founded 
on personal observations too subtle often to be described, much less 
enumerated. 

His salary should be liberal, for nature will not otherwise produce 
the activity of mind and body that are essential to his duties. Be- 
sides, he must engage in no private business, and will possess 
neither leisure nor taste to attend minutely to his domestic ex- 
penses. No salary can equal in value the devotion of such an of- 
ficer ; still, extravagance is unwise as an example, and unnecessary 
as a stimulant. The more capable the officer, the more he will ap- 
preciate money, and instances are frequent where bank services of 
the most valuable kind are accorded on salaries that would be 
deemed unsatisfactorily small by officers whose habits are less suited 
for the station. 

The duties of a board will rather commence than end with the 
appointment of its executive. Their proper duties are supervisory. 
Nature aids the discharge of such duties when the supervisor is 
distinct from the supervised ; indeed, one of the most difficult 
tasks of a supervisor consists in restraining the undue captiousness 
that is natural to the position. The president of the bank, as 
head of the corporation, cannot perform supervisory duties too effi- 
cient!), and he may well be entitled to a pecuniary compensation 
therefor. He should deem them under his special charge, but not to 
supersede therein the modified duties of the other directors. Super- 
vision over the manager's official proceedings will be as salutary to 
him as proper to the board. Darkness is proverbially unfavorable 
to purity, but only by reason of the concealment it creates ; every 
other means of concealment is equally productive of impurity. A 
man can easily reconcile to his judgment and conscience what can- 
not be reconciled to disinterested supervisors : hence, if an officer 
knows so little of human nature as to deem supervision offensive, 
he is unfit to be trusted. That the supervision may be full, it 
must be systematic. Every director will usually attend meetings of 
the board in a degree inverse to their frequency, but twice a week, 
or certainly once, where the bank is not very small, will be as 
short as is compatible with a due inspection, singly, of the loans, 
in some regular order, that may have been granted by the manager 
since the last session of the board. The directors will thus learn 
individually whether the power to make loans has been prudently 
exercised; and he will learn the opinion which any of the board 
may express in relation to the borrowers or their sureties, especially 
in cities where borrowers are generally known to the board ; and a 
manager may advantageously defer to it the consummation of many 



directors' meetings and discounting. m 49 

loans in relation to which his own information is questionable, or 
about which he desires time to deliberate. Such a deferring will 
often constitute a less offensive mode of avoiding an objectionable 
discount than a direct and personal refusal, though truly the kindest 
act a banker can perform, next to granting a loan, is to promptly 
inform an applicant that he cannot succeed, when the banker 
knows the loan will not be granted. 

The supervision of the board must be as comprehensive as the 
powers of the manager. The revisions of loans will enable the 
board to ascertain, not merely the solvency of the bank's assets, 
but whether its business is conducted without partiality, or un- 
wholesome bias of any kind. Nearly every undue partiality possesses 
concomitants that may lead to its detection ; for instance, an un- 
usual laxity of security, or length of credit; with unusual frequency 
of renewals in a direct form, or an indirect, so as to screen the 
operations. A manager, properly sensitive of his reputation, and 
properly diffident of his natural infirmities, will be reluctant to 
grant loans to his relatives, or special friends ; and never to him- 
self, or any person with whose business operations he is connected. 
To enable directors to judge of these particulars, a regular attend- 
ance at the stated meetings is necessary ; but memory alone must 
not be relied on, except to suggest queries, which should always be 
capable of solution by proper books and indexes, that must be 
within reach of the directors; who should habitually inspect the 
books, that the practice may, in no case, seem an invidious pecu- 
liarity. In all scrutinies, however, the directors should remember 
that in mere judgment and expediency they may differ from the 
manager, and he may still be right, for banking constitutes his 
business, while to them it is an incidental occupation. Lenity is 
proper even to his undoubted errors, when they are of a nature 
which experience may correct ; but time will only inveterate bad in- 
tentions, and their first unequivocal appearance should produce an 
unrelenting forfeiture of his office. 

The board must understand the liabilities of the bank to its de- 
positors, bank-note holders, and other creditors ; also the funds of 
the bank, and its available resources ; so as to judge how far the 
honor of the bank is safe in the care of its manager. The char- 
acter of depositors and borrowers are also proper subjects of gene- 
ral scrutiny by the board, by reason that the reputation of a bank 
is inferable from the reputation of its dealers ; not that disreputable 
people should be rejected as depositors, but a bank is not an ex- 
ception to the proverb which speaks " of birds of a feather ; " and 
when the customers of a bank are generally respectable in their 
character and business, we may be sure that the management of the 
bank is at least ostensibly moral and mercantile. 

The ticklers of a bank are books which show in detail the debts 



50 PRACTICAL BANKING. 

due, prospectively to a bank, and the days of payment. The ag- 
gregate footing of the ticklers will accordingly exhibit the amount of 
loans not yet matured, and inductively the amount that is past 
due. The information which relates to the amount past due is 
often given reluctantly, but a knowledge of it is vastly important 
in the proper supervision of a bank; and when tested by the 
ticklers, the information cannot well be deceptious, or evaded. In 
knowing the amount of past due loans, the board can pretty ac- 
curately conjecture the character of the bank's customers. Such 
loans should be satisfactorily explained by the manager, and the 
means he is taking in their collection. The like may be said of 
over-drafts,* which are rarely permitted by American bankers, 
though in England they seem to constitute one of the regular 
modes of advancing money to customers. Whether they shall be 
permitted is within the proper discretion of the board, and should 
they occur, inadvertently, the occurrence ought to be manifested to 
the board. An exemption from losses is impracticable in long-con- 
tinued operations; yet all grades of intellect are procurable, hence 
the retention of an officer is unwise when his results are unsatis- 
factory. Every man can adduce excuses which no person may be 
able to controvert ; but when miscarriages are frequent, or import- 
ant, the board should assume that something wrong exists and 
eludes detection, rather than that nature deviates from her accus- 
tomed processes, making vigilance unsafe, and skill unprofitable. 
The examination of vaults, and counting of money, rarely reveal 
defalcations, till the defaulter no longer endeavors to conceal his 
delinquencies. The counting is not pernicious, if the board choose 
to amuse their vigilance therewith ; but we have not attempted to 
designate modes in which frauds are detectable ; the ingenuity of 
concealment being naturally as great as the ingenuity of detection. 
Besides, the detection of skillful frauds requires a greater familiar- 
ity with banking accounts, and a more laborious inspection of bank 
books, than can ordinarily be expected of bank directors. For the 
detection of frauds, therefore, the best practical reliance is a super- 
vision, in the way we have indicated, of the bank's business, and 
a familiar observation of the general conduct, habits and expenses 
of the manager, as well as of all the subordinate officers ; the 
latter, however, are more especially within the duties of the man- 
ager. The ruin of a bank, by fraud, commences usually in the 
personal embarrassment of the delinquent, contracted by improper 
self-indulgences, or the assumption of secret hazards. Men rarely 
plunder till their conduct is otherwise disorganized, external symp- 
toms of which observant directors may discover. A bank officer, 
therefore (and the higher his official position the more urgent the 

* The term " over-draft " means that the depositor has drawn for more money than 
the balance to his credit. 



DIRECTORS' MEETINGS AND DISCOUNTING. 5 1 

rule), who will not keep disengaged from all suretyship and from 
business that may render him pecuniarily necessitous, is as unfit to 
be intrusted with a bank, as a nurse who frequents small-pox hospi- 
tals, is unfit to be trusted with unvaccinated children. In men- 
ageries, animals are kept peaceful by preventing the cravings of 
hunger ; bank executives require a similar assuasive ; not by glut- 
ting them with great salaries, but by preserving them from ex- 
penditures unsuited to their income, and from pecuniary liabilities. 
A bank manager of undoubted wealth presents therein the best 
attainable guaranty against misconduct, and is entitled to greater 
freedom of action in his personal transactions than officers of 
ordinary circumstances ; still we will terminate this first part of 
our undertaking, by venturing the advice, that when a man wants 
to be more than a bank manager, especially when he' wants to 
employ much more than his own funds, he had better cease from 
occupying a station which he is too ambitious, or too avaricious 
to fill under restraints, which experience shows are alone safe. 

We shall now consider the function performed by a bank in dis- 
counting paper. First, however,* it is necessary to say a few words 
respecting capital, since it is from the peculiar use made of capital, 
in the production and distribution of wealth, that the necessity for 
banks arises. 

• Capital used in production, is either fixed or floating. Fixed capi- 
tal is invested in lands, buildings, machinery, mines, canals, railways 
and their equipments, telegraphs, &c, all these being used in the 
creation and distribution of wealth. Floating capital is invested in 
the things produced, whether raw materials, or articles completed, 
or in process of completion. It also pays for the labor and 
other service ( wages and salaries ) necessary to production and 
to the distribution of products. The processes of production 
are very numerous and distinct. Each producer, when he has 
completed his part of these processes, desires to sell his product, 
realize his profit, and begin .again with fresh materials. The quicker 
he can do this, and the oftener he can repeat it, the greater will 
be his profit ; for, in a normal state of things, each repetition brings 
a profit. All the floating capital which he requires is enough to 
enable him to do this easily, and without friction. If each article 
were sold for cash, as soon as completed, and no store of raw mate- 
rials had to be kept in excess of immediate wants, the minimum of 
floating capital would be attained ; and if the fairly estimated profit 
were always realized, the wealth of the producer would be con- 
stantly increasing, and his business might either be enlarged, or a 
surplus safely withdrawn for outside uses. But immediate sale of 
products by the producer, and immediate payment for them by the 

* This portion of the chapter, to page 58, is from the pen of George Walker, concerning 
whom proper mention is made in the preface of this work. 



52 PRACTICAL BANKING. 

buyer, are practically impossible. A long process of digestion must 
be gone through with before ultimate payment and the final payer 
( who is the consumer ) are reached ; and consequently the producer 
cannot immediately sell, aud the buyer cannot immediately pay. 
Markets may be dull, or overstocked, and buyers may be either slow 
to come forward, or come without ready money. Hence, the pro- 
ducer requires additional floating capital to carry his products till 
sold ; and the buyer requires credit till he can get the means to 
pay for the property bought by its resale. But a sale on credit is 
to the producer, so far as the use of capital is concerned, precisely 
like carrying the property without sale. Till he gets back the 
value of his production, he must depend on other means to carry 
on his business. He must find the necessary capital elsewhere, or 
his production stops till payment by the buyer enables him to start 
again. But a healthy business cannot stop ; it must go on con- 
stantly and evenly, if the highest economy is to be attained. Stop- 
page means idle factories, rusting machinery, unemployed workmen. 
The friction and loss incident to stopping and starting would eat 
up a large profit, and would destroy the even current of produc- 
tion upon which stability of prices largely depends. The producer 
cannot stop ; he must from some source, get the money to go on 
with, and fortunately his business furnishes the basis on which to 
get it. He must borrow money on the faith of the property sold. He 
cannot, it is true, pledge the property specifically, for he has sold 
it and parted with possession, and hence, I say, he must borrow 
on the faith and not on the pledge of it. But though he cannot 
pledge the property itself, he pledges what represents it, namely, 
the written promise of the buyer to pay the price of it at a fixed 
future date. In mercantile language, he gets the buyer's note or 
bill discounted, and here comes in the first legitimate function of the 
bank, a functiojt which imderlies all its operations, and is the touch- 
stone of the regularity of its business. 

To reduce it to a definition or formula, I should say that the 
first and most important function of a bank is, by the use of the 
capital which it controls, to bridge over the periods of credit 
which necessarily intervene between production and consumption, in 
such a manner as to give back to each producer, or middleman, 
as quickly as possible, the capital invested by him in such products, 
in order that he may use it over again in new production or new 
purchases. In this way the interruption of business, which would 
be a public, as well as a private loss, is avoided. Thus defined, 
banking is not only one of the most useful, but it is also one of 
the most safe and healthy of business operations. Its safety lies in 
the fact that every loan of the character described, is based on 
property of intrinsic value ; and it is the property which, in the 
last resort, pays all the loans predicated upon it in its progress of 



DIRECTORS' MEETINGS AND DISCOUNTING. 53 

transmission from the producer to the consumer. It gathers value 
as it goes, by the addition of all intervening profits incident to 
handling and resale, and on final sale the consumer pays the first 
cost and all those profits added to it. This, of course, is on the 
supposition that the transactions have been fairly profitable. In the 
case supposed the property has been the real debtor throughout, 
and the real payer of the discounts. It has purchased the paper 
which was the subject of each discount in succession, and has 
finally been exchanged with consumer for the cash which, in effect, 
pays them all. The several makers of the paper, though debtors 
in form, are only insurers, or guarantors, in fact. They pledge their 
respective property to the payment of the loans ; but the primary and 
generally sufficient pledge is the property for which the notes are 
given. The wealth of the makers is a necessary margin or guar- 
anty, because the property sold may be destroyed, or the value may 
fall, or some one of its successive holders may, by misfortune or 
fraud, divert its proceeds from their legitimate application, namely, 
payment to the last seller. In a great majority of cases, however, 
no such contingency happens, and the guaranty is not resorted to. 
The intervening profits are an additional safeguard, inasmuch as 
each party, when he sells, ought to receive a larger note than he 
gave when he bought the goods. 

From this analysis of the origin of bank discounts it will be 
seen that the common maxim among bankers — that the safest 
loans are on mercantile paper — is not only justified by experience, 
but rests upon the simplest and clearest scientific principles. 

In the reign of the first Napoleon, France had a very enlightened 
finance minister in M. Mollien. In advising the emperor as to the 
proper administration of the Bank of France, Mollien laid great stress 
upon the principles which I have just enunciated. "He undertook to 
show that no discount is regular, except that of genuine bills of 
exchange, given in settlement of a completed transaction, in which 
three parties* have cooperated, and by means of which the ac- 
ceptor is put in possession of property of actual value, equal to 
the amount of his acceptance." 

"The discount of genuine bills of exchange, which represent the 
products of labor, which the wants of consumers have called into 
being, and which their savings are adequate to purchase, ought to 
be exclusively preferred by banks ; it is the real pivot of their or- 
ganization." 

* The three parties are, the drawer, the payee, and the acceptor. When the buyer gives 
his note instead of a bill of exchange on a third party ( as is more frequently the practice 
in certain parts of this country), the property is pledged indirectly, and only two parties en- 
gage in the transaction, while in the case of a bill drawn on the acceptor who is also the 
consignee of the property (as is the practice in the cotton, grain, and provision trades), the 
pledge is specific, and the paper is paid out of the proceeds of sale. 



54 PRACTICAL BANKING. 

" He reproached the Bank of France with paying too little atten- 
tion to the discounts of genuine bills of exchange guaranteed by 
merchandise in store, which was in demand for consumption, and 
which the income of the consumers was adequate to pay for." 

Keeping in mind the definition already given, and which I now 
repeat, that the true function of banking is to bridge over the 
periods of credit which necessarily intervene between production 
and consumption, by immediately advancing on the faith of the 
property, to each producer and middleman, his capital invested in 
the product, and his profit earned in producing or handling it, it 
is easy to analyze and to test all loans and discounts of a differ- 
ent sort which banks are in the habit of making. The loans which 
come the nearest in principle to those embraced in the definition, 
are such as are made upon the specific pledge of property although 
not yet sold. These may be strictly legitimate, or highly specula- 
tive, according to circumstances. When property is on its way to a 
market, with the certainty or probability of early sale, according to a 
well established course of trade, it is strictly legitimate to loan upon 
it, if the loan is made with a proper margin. Of this character 
are all bills of exchange drawn against produce or merchandise, 
consigned for sale, either in the home or foreign market. If ac- 
companied by a specific pledge of the property, they are called docu- 
mentary bills, because the title is authenticated by bills of lading, 
and protected by policies of insurance, which accompany the paper. 
The merchandise is sold " for account of whom it may concern," 
that is to say, for account of the bill holder firsthand of the owner 
of the property afterwards. A very large part of the grain, produce, 
cotton and tobacco business of this country is transacted by means 
of documentary bills. They have often little else than the value of 
the property to depend upon, the drawers and acceptors being only 
middlemen, or factors of small responsibility. If the property is of 
a staple character, always salable at a price, and the advances are 
sufficiently below its value, such bills make very desirable paper, for 
the reasons already given that they do not depend on the solvency 
or even the good faith of the parties, the property itself, authenti- 
cated by its title deeds, being the real security. Foreign bankers 
make their profit very largely in buying documentary bills at one 
rate and selling their own plain bills at a higher rate : but it re- 
quires large capital and established credit to make a market for 
bankers' bills. In recent years the margin of profit has been very 
small, and the liability incurred in making it is immense, as both 
the bills purchased and those sold have to bear the banker's signa- 
ture. Foreign bills are not usually dealt in by American bankers, 
except in the Southern cities, where cotton and tobacco are often 
consigned directly to a foreign market. The same is probably true 
to some extent in the grain-handling cities of the West and in 



directors' meetings and discounting. 55 

California. It hardly pays to discount foreign bills and send them 
abroad for collection and remittances of proceeds. To deal profit- 
ably in them, a bank must draw exchange, as well as buy it, and 
the business of drawing is almost exclusively in the hands of private 
bankers, and of the representatives of European or Canadian banks. 
It has always been a surprise to many that some of the larger New 
York banks have never competed for this business. They possess 
in a high degree the most important qualifications necessary to a 
good drawer of exchange. They have an adequate known capital, 
make and publish periodical reports, arc examined by official ex- 
perts, and are conservatively managed by officers and directors con- 
spicuous for their wealth, experience and probity. Some of them 
have existed for a long time, and have acquired that wide-spread 
reputation which is a first requisite in a drawer of foreign bills. 
Such a participation in foreign business on the part of the incor- 
porated banks would have this further advantage, that the banking 
of this country would be thus allied more closely with the banking 
and financial operations of the rest of the world. At present there 
is too great ignorance of, and too little regard paid to, what is 
going on in the monetary world abroad. It is not considered a 
necessary part of an American banker's education to study foreign 
banking and finance, and, as a consequence, all the profit which 
the banking business should properly derive from foreign commerce, 
is turned over to private individuals, largely foreigners, or to the 
representatives of more sagacious and cosmopolitan foreign institu- 
tions. One obstacle to engaging in foreign banking, by the incor- 
porated banks, is the great subdivision of capital, and the smallness 
of the amount controlled by any one institution. 

Besides loans on specific property consigned for sale, banks often 
lend on property withheld from market for a better price. Such 
withholding is, of course, speculative, and the loans are more or less 
tainted with that quality. They are not always to be condemned, 
but they should be made with great caution, and not relied upon to 
meet the bank's immediate liabilities. Enough available means should 
always be held in cash, and in perfectly reliable short paper, certain 
to be paid at maturity, to cover circulation and deposits. Capital 
and surplus, when not absorbed in Government bonds (as is largely 
the case with that of the National banks ), may be lent on longer 
and less convertible security. Convertibility, however, is the first 
requisite in the collaterals to a loan. 

The moment such collaterals are inadequate to protect the loan 
by a forced sale, the debt becomes unsafe. The objection to loans 
on property not sold, or consigned for sale, is that they have no na- 
tural maturity, and however ample the collaterals, they are essentially 
accommodation loans, and have often to be inconveniently prolonged. 
The test of soundness in a bank is the speed with which it could 
liquidate, and return its capital to stockholders. 



56 PRACTICAL BANKING. 

If loans and discounts could be kept within the limits which 
have been described, banking would be a very safe and easy 
business ; but it is nearly impossible to avoid a class of transactions 
of a far more questionable character ; and when banks fail, or lose 
heavily, it is almost always because questionable loans have become 
the rule, instead of the exception, in their business. The quality 
of convertibility has been gradually lost sight of ( usually in the 
greedy pursuit of high rates of interest), and, little by little, the 
assets have become tied up in a harder and harder knot. Common- 
est among objectionable loans are those on personal security, and 
accommodation paper without collaterals ; such as is not the out- 
growth of any business transaction, out of the completion and frui- 
tion of which, the means of payment will be derived. Loans made 
for the purchase or improvement of real estate, whether productive 
or speculative; loans to provide quick capital for corporations, or 
for individual business, are not only very objectionable, but unfor- 
tunately also very common. However strongly fortified by names, 
they are always reluctantly paid, and often the cause of anxiety 
and trouble. It is entirely outside of the province of legitimate 
banking to furnish money for such purposes. Investments should 
be the result of savings, and it is very unwise, either for an indi- 
vidual to anticipate his savings by loans at short maturity, or for a 
bank to help him to do so. So of quick capital ; I have shown 
that all business requires it, and it should be greater or less ac- 
cording to the business. It is the margin which protects from dis- 
aster, and guarantees success. It is no part of a bank's business 
to lend that margin. By so doing, it takes on itself the risk 
which belongs to the customer, and which is the strongest incen- 
tive to prudence. Its duty to him, and its proper relation to his 
business, begin and end with turning his products into cash, as 
soon as they are sold — converting his credit sales into cash sales, 
and thus reducing the necessary amount of his floating capital or 
margin, without assuming to provide that margin. 

A class of loans which has done more than any other to bring our 
banking institutions to grief, within the last twenty years, is that 
on railroad bonds. It is very pertinent, in spite of all that has been 
said and written about it, and while the experience is fresh and pain- 
ful, to point out the reason why such loans were disastrous, and to 
indicate the inherent quality which made them so. This leads us to 
say a few words about commercial, or rather financial, crises, and the 
steps which lead to them. The soundest maxims and practices prevail 
in the business world after a crisis and liquidation. Convalescence 
and repentance go hand in hand, the world over. When business is 
fairly resumed, in the good time now coming, we shall see every 
class of business men proceeding with the greatest caution. Miners 
and manufacturers will be careful not to overstock the market ; mer- 



directors' meetings and discounting. 57 

chants will sell on short credit, and scrutinize the means and char- 
acter of their customers ; banks will keep their money in the till, 
rather than make doubtful loans ; investors will be content with a 
low rate of interest, so long as the security is undoubted ; specu- 
lation and the speculator will be read out of all decent society, 
and the men who get up pools and corners will be avoided by all 
who need credit and are careful of their reputation. Contentment 
economy, and good morals will prevail, and for a time we shall 
constitute a model society. But by and by we shall tire of too 
much virtue ; the wheels of industry and exchange will move 
more rapidly, competition will be sharper, accumulating profits will 
encourage more luxurious living, luxury will multiply wants faster 
than the increase of means, higher profits will be demanded and 
greater risks will be assumed to realize them ; speculation, which 
is oftener the offspring of artificial wants than of the love of 
gambling for its own sake, will take the place of slow and plodding 
industry. This will be the progress of things in one direction. A 
progress more potential and not less dangerous will, at the same 
time, go on in another. Capital accumulates more rapidly in pros- 
perous seasons, than the chances which offer for its employment. 
Surpluses accumulate, and with them the channels of investment 
widen. The first use of a surplus is to increase reproductive capi- 
tal ; but there is a limit to the use of such capital. To augment 
it too rapidly would lead to over-production and over-trading, and 
these will inevitably occur before capital consents to seek remoter 
and slower resting places. But seek them ultimately it must and 
ought, for otherwise civilization would cling to its old centers, and 
the extremities would never be opened up or enriched. This process 
involves the conversion of floating into fixed capital, or to use the 
more expressive European phrase, the immobilization of capital. 
Capital arising from the profits of business, and invested in lands, 
buildings, factories, railways, mines and furnaces, is thus immobil- 
ized. The degree of immobilization is greater or less, according as 
the resulting revenue from the investment is more or less remote- 
If a quick return is yielded, and that return does not involve 
over-production, the proceeding is wise and healthy. If, on the 
other hand, the return is uncertain, or very remote, there is great 
danger that capital, instead of being immobilized merely, may be 
absolutely lost. It is rarely possible to compute with accuracy the 
cost of a great undertaking, or foretell the period of its fruition. 
The disposition to spread present means over a great deal more 
ground than it can fairly fructify, is as universal as the disposition 
among farmers to cultivate too much land. 

Now, let us apply these principles to our past railway construc- 
tions. The two dangerous elements to which we have adverted, spec- 
ulation seeking illegitimate profits, and surplus capital driven to seek 



58 PRACTICAL BANKING. 

remote investments, cooperated to make it what it was. Men with- 
out capital did most of the speculating, men with more capital 
than they knew how to employ profitably furnished the means. 
But the means available proved to be sadly inadequate to the un- 
dertaken schemes. It became soon apparent, in almost all cases, 
that to save the surplus first invested, the capital, vital to business, 
must be encroached on. Thus, little by little, the working capital of 
the country— mot its savings, but its life — was drawn into the fatal 
vortex. This working capital is like the grease which greases the 
wheels of the farmer's wagon. If not seasonably supplied, the 
heated axle utters its notes of alarm, and if this goes unheeded, 
the wheel is set fast and the vehicle is stopped. The wholesale 
construction of railways on credit was a business of which the 
country had no experience, and this is the only excuse for the 
gross violation of sound business principles which it involved. The 
banks were no wiser than the people. They began to lend moder- 
ately, on the security of railway bonds, before railways had been dis- 
credited, and when they had a surplus of capital to lend ; and 
they ended by lending immoderately on the same security, after its 
treacherous character had been disclosed, in the vain struggle to 
save their past loans, or to assist customers whom they were un- 
willing to see go to the wall. Very largely, also, in 187 1-2, and '7$, 
they lent to railways, on railway securities, for the sake of illegiti- 
mate interest, by which we mean not such rates as merely violate 
the usury laws, but such as no healthy business ever did or ever 
can pay. They were lending to a spendthrift heir on the doubtful 
security of a post-obit bond. There is no danger that this folly 
will be repeated in our time, but there are always snares set for the 
unwary, and the next decade will doubtless disclose its own pecu- 
liar temptations, and a period of prosperity will hardly escape the 
usual dismal ending. 

The regular meetings of Boards of Directors in most banks are 
held twice a week, but in some banks meetings are held daily. 
The mode of discounting paper varies much in different banking 
institutions. In many of them, especially in the larger cities, the 
business head, whether he be the president, vice-president or cashier 
passes on the paper as soon as it is offered for discount. Cus- 
tomers cannot wait, money is wanted, and they are speedily told 
whether they can be accommodated or not. But with the country 
banks a different custom prevails. The paper is offered for discount 
and is put before the directors, and they decide whether to accept 
or to decline it. The president of a very profitable bank in New 
York City once said to the writer, that after his bank had been in 
existence for ten years it had lost only three pieces of paper, and 
these were discounted by the board during his absence. He loaned 
the money, and the directors at their meetings merely ratified the 



directors' meetings and discounting. 59 

loans made. A board is a very convenient body for referring 
paper which an officer is unwilling to accept. He does not wish 
to offend the offerer by declining to discount it, and so it is re- 
ferred to the board for their action. This is the least offensive 
way of telling a man that he cannot be accommodated. Of course, 
many cases are referred to the board for their action which may be 
decided favorably. The amounts may be very large, or there may be 
something peculiar about the loans, a longer time than is usually 
granted perhaps may be wanted, and the cashier or president may 
not wish to assume the sole responsibility. When banks hold daily 
meetings the directors decide what paper shall be discounted. 

In order to have a correct knowledge of dealers' accounts, the 
cashier has on his desk a book which contains a record of the 
average daily balance of every dealer. This is made up at the end 
of each month, and the average for the month is entered in the 
Average Book. At the end of the year the average for the twelve 
months is struck, and usually the Average Book is so ruled as to 
show the daily average for five to ten years previously. The Aver- 
age Book is indexed throughout on the margin, with as many 
leaves as are required for each letter. The names of National 
banks are usually entered first, alphabetically, then State banks, 
then bankers, and then the individual depositors from A to Z. 
Usually there is a new Average Book for each year. 

The amount of discounts usually granted to a dealer (the bank's 
safety, of course, first being assured ) is proportionate with his aver- 
age balances. For example, a dealer whose general average balance 
is $ 1 5,000 would be entitled to accommodation, other things being 
the same, to five times as large a line as a dealer with an average 
balance of $ 3,000. Hence a correctly kept Average Book is an im- 
portant guide in granting discounts. 

Good banking requires a bank to be in a condition to meet every 
dealer's reasonable needs in proportion to his balances, irrespective 
of the current condition of the money market. 

At Directors' meetings the president is seated at the head of the 
table, and the cashier occupies a convenient seat near him. In 
some banks the directors have particular chairs, in others no order 
of arrangement is observed. The cashier reads the minutes of the 
previous meeting of the board, and after their approval the 
board proceeds to other business. The cashier records the names 
of the directors present, as this fact is worth preserving. The 
business transacted since the" last meeting, as previously stated, con- 
sisting of the discounting of paper on the responsibility of the 
bank manager, is submitted for ratification. Banking institutions are 
not always so particular as they ought to be in doing this, or in 
examining the paper taken. 

When the wrong practices of Eno, the president of the Second 



6o 



PRACTICAL BANKING. 



National Bank of New York, were discovered, it was found that 
not only did he discount paper on his sole responsibility, but kept 
it in a vault down town, not belonging to the bank, and the 
directors never saw it. They accepted his statement of what he 
did as true, and never troubled themselves to look at the paper 
discounted. Had this been done, Eno would have been obliged 
to resort to some other artifice to conceal his fraud; or, what is 
quite probable, could not have gone so far as he did, without ex- 
citing suspicion leading to his detection. 

Vigilance is the price of prosperity, and this applies more em- 
phatically to banking than to almost any other kind of busi- 



Daily Statement, 



,188 





Monday. 


Tuesday. 


Wed. 


















// // 








Sundry securities 

























































Total cash.. 








































Total expenses, &c. 




















Other Real Estate 




















Total footings 
































Total reserve 

























DIRECTORS MEETINGS AND DISCOUNTING. 



6l 



ness. No bank manager, however long and ably he may have 
served a bank, ought to be permitted to conduct its affairs without 
supervision. Directors who do not direct occupy a false position 
toward the public, the depositors, the stockholders and the bank 
manager. The welfare of the several classes concerned in the in- 
stitution demand that these officials should not neglect their duties. 
Before proceeding to discount paper, it is necessary to know what 
resources a bank has available for that purpose. This information 
is contained in a Statement from the General Ledger. The follow- 
ing form is copied from the Daily Statement Book of a bank in 
New York City : ♦ 

Arctic National Bank of the City of New York. 





Monday. 


Tuesday. 


Wed. 


Capital stock 












Surplus fund 








Profit and loss 




Discount 




Interest 




Exchange 




Rents collected 




Total profits 












National circulation outstanding 






\ 






Dividends unpaid 












Individual deposits A to — 








// // — to — 








Certified checks 








Total individual deposits 












Banks and bankers' deposits A to — 












u ii ii — to Z 








Afternoon mail 








Total banks and bankers' deposits 










Total footings 




















( Daily ) Net deposits 




Weekly average — Loans and discounts 








to Deposits 













62 PRACTICAL BANKING. 

The items are read, or the principal ones, and afterward the offer- 
ings, consisting of notes on which the owners are desirous of obtaining 
money of the bank. Instead, however, of reading these, a record, 
previously made in a book called an Offering Book, is read to the 
directors. In this book the names of the offerers are recorded 
alphabetically, the amount of each note, the time it is to run, the 
name of the indorser, where payable, and any other particulars re- 
lating to it. In small banks the notes offered are read without re- 
gard to alphabetical order. 

If the amount of offerings exceeds the amount of loanable funds 
of course not all can be accommodated, even if their notes be de- 
sirable. But rarely does it happen when any considerable amount of 
paper is offered that it possesses a uniform value. Some makers 
or indorsers are better known, and are preferred" to others. What, 
therefore, happens, is to select from the entire amount offered the 
most desirable offerings, and to decline the remainder. Yet, often 
the entire amount offered is not enough to absorb all the loan- 
able funds. Then the bank must look elsewhere to find a way for 
employing its resources. One way is to buy paper, though in buy- 
ing it the board may pass on the transaction the same as would 
be done if offered in the usual way for discount. This business 
of buying paper is worth a brief explanation. 

It is purchased by a bank of a note-broker. But where does he 
' get such paper to sell ? Of merchants. Formerly they gave notes 
only for the merchandise they bought, but in recent times they 
give notes without reference to the purchase of any special mer- 
chandise, in order with the money thus obtained to discount their 
bills. 

Once when notes were for a longer period, and notes were al- 
most universally given for purchases, they were generally drawn to 
the maker's order, and read for value received "from A B & Co.," 
or whoever the seller might be. Indeed, some houses were so care- 
ful lest the paper might be thought to be viade paper that they 
inserted the name of the seller of the merchandise in full. This 
paper was sold largely in the " street " to banks and others, who 
bought it with confidence because it represented an actual business 
transaction. It suited commission houses and importers, because if 
not willing to hold the paper until maturity, they could realize upon 
it without the responsibility of endorsing it, and thus go on and 
sell to a house (whatever their own private opinion of its soundness 
might be ) so long as the paper would sell at a rate of discount not 
interfering too much with the profit on the goods or the rate of 
commission. This, of course, was legitimate dealing, representing 
actual merchandise transactions. So, indeed, is the making and 
openly selling of one's paper in the market, and the using of the 
proceeds in " cashing" bills, legitimate, but it is dangerous and liable 



directors' meetings and discounting. 63 

to abuses. Funds so obtained can be used for any purpose, and the 
developments in some recent failures have shown that the money- 
was often used for operations entirely outside of the regular busi- 
ness of the maker, or for purely speculative purposes. 

As merchants often sell their paper at six or seven per cent, 
interest, and discount their own bills at seven to nine per cent., 
of course they make two or three per cent, by borrowing the 
money for thus paying their bills in advance of their maturity. 
The broker gets a commission for negotiating the merchants' paper, 
w T hich must be deducted from the profit of the transaction. After 
deducting this brokerage, however, there is a considerable profit 
from borrowing money as just described, and the business has be- 
come a very large one. 

In some parts of the country, Hartford, Connecticut, for example, 
the banking capital is much larger than can be profitably employed 
locally. Providence is another place of the kind. The banks of those 
cities consequently invest large sums through note-brokers. 

The following is the method of conducting the business in 
the largest cities. A printed or lithographed list of notes is sent 
to a bank. It may contain a description of a hundred pieces of 
paper and is marked " This is for bankers' use only." Each piece 
is numbered. If a bank wishes to see any of the pieces therein 
described, they are sent on application. There is another way, how- 
ever, of negotiating such paper, which may be explained here. If a 
note-broker were selling all the paper given by a certain merchant, 
the broker would be very careful in offering it for sale. If a banker 
has twenty thousand dollars of it, for example, and the broker knows 
that he cannot increase the amount, he will be careful not to offer 
more. The broker would be equally careful not to put such paper on 
a printed list through fear that the banker would see it, and con- 
cluding that the merchant was giving a large amount of paper, would 
determine to buy no more. The banker, in other words, might 
conclude that the merchant was issuing more paper than he ought 
to issue if his name appeared very frequently on printed lists. 

Sometimes the broker has the notes in his possession for sale ; in 
other cases he has simply a memorandum of them. In the latter 
case he has a printed form, containing the name of the maker, 
amount, when and where payable, indorser, and other particulars. A 
list is sent to a bank containing such a description of notes, or 
a broker, or agent for him, may visit a bank personally and exhibit 
such a list, or the paper itself, which he wishes to negotiate. Many 
banks are visited several times a day by these brokers offering the 
notes of persons for sale. 

It may be further added that b-okers do not always get posses- 
sion of the notes until they have paid for them. Several practices 
exist in this regard. One practice is for a merchant to make notes 



64 PRACTICAL BANKING. 

and then deliver them to a note-broker for sale. The latter may 
give a receipt or acknowledgment, or he may not. In such a case 
the merchant has entire confidence in the broker, otherwise he 
would not give him notes without adequate security. There are 
some very good reasons for thus leaving notes with a broker when 
perfect confidence is reposed in him. Very likely he has a class 
of customers, retired merchants, perhaps, who buy paper occasion- 
ally. They frequent his office, and, if he has notes which they can 
examine, may be led to purchase, whereas they would not do so if 
the broker had only a memorandum of the paper, and was obliged 
to send for it before he could sell it and get the money therefor. 
For this reason, therefore, sales are facilitated by entrusting the 
broker — and, in truth, vast amounts are left for sale. When Alonzo 
Follet, of New York, failed a few years since, he had in his office 
nearly $ 10,000,000 of notes, and the amount of paper that he had 
sold annually was about $ 100,000,000. 

Another way is for merchants to leave their paper with a note- 
broker and get immediately from him a certain amount thereon. A 
merchant, for example, may leave $ 25,000 of paper and ask for 
$ 10,000, expecting the balance when the paper is sold. The note- 
broker pays him this advance on account, and after selling the 
paper and deducting his commission sends the balance. 

Another way is for the note-broker to buy the paper, paying 
therel'or at the time of the purchase. A note-broker will go to a 
merchant and say, " I will take so much of your paper at such a 
rate." If the rate be acceptable, the merchant will sell it to him 
and get his money. In these cases the broker expects to sell the 
paper at a lower rate, and to make more than he would if charging 
the ordinary commission. Many brokers do wholly a business of this 
kind — buying paper and selling it at the best rate they can obtain 
for it. 

The broker's commission in the large cities is one-eighth of one 
per cent.; but for negotiating leather paper, as it is called, one- 
quarter of one per cent, is paid, and the same rate is paid on dry 
goods and on tea paper. The rate first named, however, is the most 
general one for negotiating notes. 

In negotiating paper note-brokers sometimes endorse it. Follet, 
whom we have previously mentioned, guaranteed all the paper 
he sold, and thus became contingently liable for a very large 
amount. It was said at the time of his failure that the banks 
which bought it did not do so on his guarantee, but on the credit 
of the makers of the notes. A bank president at that time re- 
marked, " If a man were to guarantee the note of the richest man 
in New York, he would be contingently liable for its payment, but 
the note would be valuable because the maker was responsible. 
Follet's transactions were very large, and he handled the paper of 



directors' meetings and discounting. 6$ 

some of the best firms in the city. I presume the banks of the 
city are now buying a million dollars of paper a day from brokers, 
all bought because the maker is supposed to be good, and not be- 
cause the broker endorses it." 

It may be added that banks do not buy paper of the brokers in 
preference to discounting that of their depositors ; but as we have 
previously said, these institutions are often unable to loan all their 
resources to persons who make a direct application for money. 
Banks must therefore either resort to the note-brokers, or loan in 
some other way. 

This bought paper, as it is termed, is entered in a discount 
book, separate from the Dealers' Discount Book, and for distinction 
the bought-paper book is called Cashier's Discounts. Cashier's 
Checks are given for the paper purchased, and each day the total 
payments of the Cashier's Discounts are credited to the " Cashier 
account " in the ledger. Each check when presented and paid is 
charged to cashier's account, which offsets the corresponding credit. 
Paper discounted for dealers is posted in a Dealers' Bill Book, 
with a title page for each dealer. Paper purchased is posted in a 
Cashier's Ledger, with a title page for each name on the strength of 
which the paper is bought, and both books, of course, are indexed. 
A reference to any name can therefore readily be had, and the 
amount on hand, if any, at once be ascertained. 

The officers, therefore, may tell at a glance what, and how much 
of any name bought, they may have on hand. Many banks have 
lying on their president's desk a small book, the leaves of which 
are made of silicate slate, with two or three leaves for each letter 
of the alphabet. The names of paper purchased, with the due 
dates and amounts, are written in pencil on the appropriate pages, 
and the entries are corrected daily by erasures or additions, as the 
case may be. 

Some banks have adopted a very perfect system of recording 
the information they obtain concerning the paper they buy. Books 
are prepared with a page or more devoted to each name. Here 
are recorded, briefly and succinctly, condensed extracts of mercan- 
tile agency reports, extracts from letters that may be received re- 
lating to the character and responsibility of the house in question, 
synopses of conversations with merchants, bankers, and others who 
have been found to know the firm, &c., &c. A voweled index 
affords means of speediest reference to any desired name. 

Although the buying of paper has long been practiced by the 
banks, the Supreme Court of Minnesota, in 1872, declared that a 
bank which was authorized by statute "to carry on the business of 
banking by discounting notes, bills and other evidences of debt," had 
no authority to buy paper.* The custom of buying paper has not 

* Farmers and Mechanics' Bank v. Baldwin, Banker' s Magazine, vol. 31, p. 630, and see 
the same volume, p. 510, for a discussion of the subject. 



66 PRACTICAL BANKING. 

been shaken in the least by this decision. It has been practiced 
too long and extensively to be overthrown by anything except a 
legislative enactment. 

A common way of lending is on collateral security, that is, on 
bonds, stocks, warehouse receipts and other evidences of property. 
Within a few years the banks in the large cities have increased 
their loans of this nature enormously. They have done so partly 
because the purchase of paper from note-brokers has proved so haz 
ardous. Within two years mercantile failures have occurred, from 
which some banks lost heavily in consequence of having large 
amounts of bought paper. One failure was that of a leather house, 
whose principal office was in Boston. The banks did not suppose 
before the failure that the house was floating such an enormous 
amount of paper. By making their notes, and giving them to note- 
brokers to sell, it was exceedingly difficult for others to form any 
judgment of the amount made and negotiated. After that failure, 
many banks concluded that if loans were made on collateral security 
their risk would be diminished. They believed that they were quite 
capable of judging accurately of the value of collaterals offered as 
security. Many of these loans are made on call, that is, the bank 
can demand payment immediately, or after one day's notice. Loans 
on railroad securities as collaterals are regarded with favor by some 
of the most conservative banks. 

The New York Stock Exchange will not list any kind of stocks 
or bonds unless the instruments or evidences of them are engraved 
on steel plates. All railroad stocks are required to be issued at a. 
transfer agency and registered at some well-known bank or trust 
company. This is to prevent a fraudulent over-issue of certificates. 
The principal New York City banks have the stock exchange tele- 
graph quotations in their banking rooms, and therefore are promptly 
informed concerning the current fluctuations of the market. On 
such securities, loans are made usually within ten or fifteen per 
cent, of the market value. The fluctuations in these stocks thus 
pledged are carefully watched by a person in the bank, especially 
appointed for that purpose. It is his duty to demand either more 
security, or the payment of a part of a loan, in the event of a 
decline in the value of the security pledged therefor. 

In some States, though the rule is not uniform, the law requires 
that for a collateral to be good security when delivered to the bank, 
stock must be actually transferred on the books of the company 
which first issued the same. 

Another form of loan is that made on the security of business 
paper. Thus, a merchant having a number of small notes of his 
country customers, brings to the bank $15,000 or $20,000 of such 
paper, and asks, on the pledge of it, for a loan of $ 10,000, giving his 
own note at thirty, sixty or ninety days. This custom is more com- 



directors' meetings and discounting. 67 

mon in Western cities than in New York. It is among the safest 
of business transactions, if ordinary care and discrimination are ob- 
served, for if the principal should fail, his estate will pay something, 
and the division of the remainder among several parties, with a con- 
siderable surplus beyond the amount, leaves the risk of loss very 
small. 

Such are the several ways of loaning the resources of a bank. It 
may be added, however, that fewer losses occur in loaning to regular 
dealers than in buying paper. Banks, of course, know more about 
their dealers than about other persons not keeping accounts with 
them. 

If a single director objects to a note offered for discount or pur- 
chase, the board generally will refuse to make the loan. If an ob- 
jection should be based simply on prejudice, the board probably 
would not respect it. But if a director should say, " I have a pretty 
good reason for not buying that paper," his opinion would be con- 
clusive. Directors are chosen partly for the information which it is 
supposed they will throw on the condition of business, and especi- 
ally on that in which they are engaged. It is supposed that a di- 
rector knows more about the condition of persons engaged in the 
same business as himself, than the other directors, whose occupations 
are different. This is why their opinions have so much weight. 
Nevertheless, bank directors are not always disinterested in the per- 
formance of their trust. Not long since we heard the following 
story. A bank director, who was also a member of the Produce 
Exchange in a large city, attended a meeting of the directors of 
the bank. Several persons, who also were members of the Produce 
Exchange, had presented notes for discount, accompanied with col- 
lateral securities, principally warehouse receipts for grain. When 
these offerings were read, one after the other, the director in ques- 
tion objected, maintaining that they were not as safe as they 
ought to be. When the entire list of offerings had been exhausted, 
a large balance remained unemployed. The director just men- 
tioned said if no better use could be made of it, he would take 
it though at a rate which was not very remunerative. His offer was 
accepted. Immediately he went to the persons who had applied for 
loans to his bank and loaned to them on the securities which they 
had offered. Of course he was not the typical bank director. 
Generally, directors are men of well-known integrity, and though 
too often neglectful in attending meetings, they freely give their 
best experience to the bank when they do attend. 

Some directors attend meetings with regularity, and take a deep 
interest in the affairs of their bank. They seek to enlarge its sphere 
and to increase its gains. There are other directors whose presence 
is a surprise. A third class appear irregularly, and sometimes are 
troublesome in their endeavor to learn concerning all the business 



68 PRACTICAL BANKING. 

done at the meetings when they were not present. They are usu- 
ally retained in spite of their ways for one reason or another. If 
they attended regularly, most of their questions would be unneces- 
sary. Time would be saved, and the temper of their associates 
would not be tried. In a large board of twelve or fifteen directors 
it is hardly possible to have unanimity on all occasions, and yet 
each director may fill his valuable niche in the institution. Each 
one, whether pleasant or disagreeable, whether regular in his attend- 
ance or otherwise, may through his wealth, or business relations, or 
knowledge, serve a useful purpose. At all events, they are usu- 
ally selected with care, and changes do not frequently occur. 

It has been said by a banker whose experience is worth heeding that 
it is one of the duties of the president to protect a dealer when he 
is unjustly assailed. To do this is also for the advantage of the 
bank. Beside the general results of the fair treatment of credit, there 
is this particular result, that the best class of customers which a 
bank can have consists of those whom it has nurtured from mod- 
erate to larger success, and whose experience has been all along 
linked in agreeable intercourse with its officers and directors. These 
are not easily seduced to open accounts with other banks ; but 
they are faithful to their old friends and they introduce other 
dealers. 

The New York City banks do not discount paper that runs for a 
longer period than four months. This is the general rule. It is 
not always observed ; but a man's credit would be unusually good, 
or ample collateral security would be required, were a loan granted 
for a longer period. Some banks will take only first-class double 
name paper, that is, paper having the name of an endorser beside 
the maker, and would prefer to buy such paper, at four and a-half 
or five per cent., to buying other paper just as good, perhaps, 
at six per cent, interest. In any event, a risk is taken, and 
with the utmost precaution in making loans losses are not wholly 
avoided. 

One of the functions of a good bank manager is to ascertain, in 
every possible way, the financial condition of his customers. Every 
well-conducted bank has a book in which everything of importance 
pertaining to the credit, ability and character of their customers is 
noted. Papers are diligently read and reports scanned, inquiries are 
made of persons who are supposed to know about others ; all 
kinds of business are investigated with care; occasionally a consid- 
erable sum is paid to an individual for making a special investiga- 
tion into the affairs of a customer. Very often these investigations 
and inquiries must be made with great tact and secrecy. If a cus- 
tomer were to find out that he were under a telescopic investiga- 
tion, he might be offended, withdraw his account, and vengefully 
exert himself to injure the bank. On the other hand, no faithful 



directors' meetings and discounting. 69 

bank manager should be negligent of his duties in this regard. 
No opportunity for inquiry should be neglected. The most success- 
ful bank managers are those who are most diligent in conducting 
these investigations, and in watching all these complicated movements 
of trade. 

Every bank should know as much as possible concerning each of 
its dealers, and the information obtained should be carefully re- 
corded and preserved. In a large business it would be impossible 
for any officer to remember the different terms and agreements and 
understandings had with its various dealers from time to time, and 
therefore it is the practice of a systematic officer to write or dic- 
tate to his stenographer, immediately after an important interview 
with a dealer, the substance of what has been said. Some banks 
have found that the most advantageous way is to have a very 
large scrap-book prepared, in which all records of conversations, 
statements of condition, agency reports, etc., etc., are pasted. 
The book should be made with numbered leaves, and with short 
stubs to which papers can be pasted, and with still shorter stub 
leaves to fill up the book, so that when it is full the back will 
not be broken. A voweled index separately bound should accom- 
pany such a scrap-book. Between each numbered leaf there should 
be room for, say, three of the shorter stub leaves on which papers 
could be pasted. These shorter leaves would be numbered 1, 2, 3, 
and the entry in the index would therefore be, say, as follows : John 
Smith & Co., Book No. 1, page (say) T | s , which would mean that 
on section 2 of page 185, in scrap-book No. 1, there could be found 
a record of all that was, known concerning John Smith & Co. A 
succeeding administration w r ould therefore be able to know just 
about as much concerning John Smith & Co. as the officer who 
directed the entry. Of course, such systems as the foregoing re- 
quire systematic and regular attention, which usually cannot be 
given by either the cashier or president, and therefore a clerk must 
be employed for the purpose. In some large banks a young man 
is employed as a "credit clerk," whose almost exclusive duty is to go 
about in the various trades for the special information required, 
and record what is learned in the above-described bought paper 
books and dealers' scrap book. 

Most large merchants outside New York City now make their 
notes payable there, and have regular accounts with the banks in 
that city. This is one reason why the banking resources of New 
York are so rapidly expanding. Another is because the city banks 
have unusual facilities for lending money. 

Bank managers, as well as bank directors, are often importuned 
to make loans through friendship and other than strictly business 
reasons. For many years the title page of 'the Banker s Magazine 
has borne the following words, uttered by a successful and eminent 



70 PRACTICAL BANKING. 

banker of Boston, Nathan Appleton : " No expectation of forbear- 
ance or indulgence should be encouraged ; favor and benevolence 
are not the attributes of good banking; strict justice and a rigid 
performance of contracts are its proper foundations." Notwithstand- 
ing these plain teachings, many a bank officer, through sympathy 
and regard for friends and customers, has granted loans which were 
not warranted either by their condition or by that of the bank at 
the time of granting them. There are many occasions when a 
bank manager cannot easily determine what course is the most 
expedient. A considerate regard for the wants of a customer, his 
ample security for the loan, the condition of the bank and of trade 
— these are circumstances which not infrequently render a decision 
difficult. Of course no extra lights can be provided for these ex- 
traordinary occasions. Human experience will not avail much at 
such times. If the bank manager does not comprehend the situa- 
tion, so much the worse for him and for all concerned ; any les- 
son he might be likely to learn would come too late to be of any 
use to him. 

Notwithstanding the length of this chapter, we cannot forbear 
adding the excellent " Suggestions to Managers of Banks," prepared 
by Mr. Hugh McCulloch, when Comptroller of the Currency, on this 
very important subject of discounts. 

" Let no loans be made that are not secured beyond a reasonable 
contingency. Do nothing to foster and encourage speculation. 
Give facilities only to legitimate and prudent transactions. Make 
your discounts on as short time as the business of your customers 
will permit, and insist upon the payment of all paper at maturity, 
no matter whether you need the money or not. Never renew a 
note or bill merely because you may not know where to place the 
money with equal advantage if the paper is paid. In no other 
way can you properly control your discount line, or make it at all 
times reliable. 

" Distribute your loans rather than concentrate them in a few 
hands. Large loans to a single individual or firm, although some 
times proper and necessary, are generally injudicious and frequently 
unsafe. Large borrowers are apt to control the bank, and when 
this is the relation between a bank and its customers, it is not 
difficult to decide which in the end will suffer. Every dollar that 
a bank loans above its capital and surplus, it owes for, and its 
managers are therefore under the strongest obligations to its 
creditors, as well as to its stockholders, to keep its discounts con- 
stantly under its control. 

" Treat your customers liberally, bearing in mind the fact that a 
bank prospers as its customers prosper, but never permit them to 
dictate your policy. 

" If you doubt the propriety of discounting an offering, give the 



directors' meetings and discounting. 71 

bank the benefit of the doubt and decline it ; never make a dis- 
count if you doubt the propriety of doing it. If you have reason 
to distrust the integrity of a customer, close his account. Never 
deal with a rascal under the impression that you can prevent him 
from cheating you. The risk in such cases is greater than the profits. 

" In business, know no man's politics. Manage your bank as a 
business institution, and let no political partiality or prejudice in- 
fluence your judgment or action in the conduct of its affairs. The 
National currency system is intended for a nation, not for a party ; 
as far as in you lies, keep it aloof from all partisan influences." 

In 1876 Mr. McCulloch delivered an address before the American 
Bankers' Association, closing with a statement of the principles of 
sound banking, which are a proper sequel to the foregoing. 

"First. — The capital of banks should be r3al, not fictitious. 

"Second. — The managers should not be borrowers, nor should 
loans be made to stockholders merely because they are stockholders. 

" Third. — A certain amount of the annual profits should be car- 
ried to the surplus — the larger the surplus the better — not only 
for the safety of the stockholders, liable as they are, under the 
bank act, for an amount equal to their shares, but for the pro- 
tection of depositors. 

" Fourth. — Banks should be kept strong in their cash reserves, 
as times frequently occur when the strongest stand in need of 
them. Nothing in the long run pays better than a ' goodly ' 
amount of idle money, especially when specie is the only legal money. 

11 Fifth. — As banks are commercial institutions, created for com- 
mercial purposes, preference in discounts should always be given to 
paper based upon actual commercial transactions. Banks are not 
loan offices. It is no part of their business to furnish their cus- 
tomers with capital, nor should loans be made under any circum- 
stances for operations in stocks, or to furnish facilities for stock 
operations. 

" Sixth. — Renewals should only be permitted to secure doubtful 
debts, or in cases in which more time is required than was an- 
ticipated when the loans were made, to complete the transaction 
upon which they were based. 

" Seventh. — Such salaries should be paid to officers and clerks as 
will relieve them from the temptation to dishonest practices ; and 
the services of those whose expenditures exceed their salaries 
should be promptly dispensed with. 

" Eighth. — Bank managers should bear in mind that they are not 
only trustees of stockholders, but that they owe something to the 
public — that their whole duty is not performed when good profits 
are made and when solvency is secured, but that they should do 
all in their power to encourage morality in business and to elevate 
credit, especially commercial credit, to the highest standard." 



72 PRACTICAL BANKING. 



CHAPTER VIII, 
THE CASHIER. 

We have already said that every bank had a leading business of- 
ficial who was either the president, vice-president or cashier. The 
presidents of the country banks very generally perform only a few 
duties besides those required by law which cannot be delegated. 
Here and there may be found a president who is the real head of 
the concern. In the larger cities the president, in most cases, is the 
real manager, who is elected to act in that capacity, and on whom 
the responsibility and success of the bank depend. 

The cashier, unless there be a vice-president, ranks next to the 
president, and has certain specified duties to perform. These are 
mentioned in the law under which the bank exists. But from w r hat 
has been already said, he may also be the real head of the bank in 
conducting its business, and this is often the case, especially in 
country banks, which form by far the majority of the whole number. 

His specific duties may be thus defined. He keeps a record of 
the meetings of the directors, at which he acts as secretary. The 
certificates of stock issued to shareholders are signed by him as 
well as the president, and so are the bank notes which circulate as 
money. Checks also drawn on other banks are signed by him, un- 
less absent, when they are signed by the president. Drafts and 
notes sent away to other banks are endorsed by him. These en- 
dorsements are usually stamped : 

" Pay to 

or order, for colln for acct 
of Arctic National Bank, N. Y. 

John Smith, Cashier." 

The correspondence .of the bank is conducted in the name of the 
cashier, and when his signature is alone required that of the presi- 
dent may be substituted, but the alternate substitution cannot be 
made. Formerly a cashier could hold no stock in his bank, and it 
was regarded an improper thing for him to keep his personal ^ac- 
count in it. The pecuniary relations of the president, also, toward 
his bank were the same. This is no longer the case. The cashier 
is usually a stockholder, and often a director. Under the National 



THE CASHIER. 73 

banking system, whereby personal liability to the amount of the 
stock is borne by everyone, if the cashier owns stock he is sup- 
posed to be more interested in the success of the bank than if 
he had no pecuniary interest. 

The cashier is appointed by the directors, and may serve for any 
length of time. He gives a bond for ten thousand or twenty 
thousand dollars for the faithful performance of the duties of his 
office, and which is signed by two sureties. Each clerk also gives a 
similar bond, and usually for five thousand dollars. These bonds 
do not cover losses occasioned by misjudgment or neglect, but only 
fraudulent transactions. The requirement would be unreasonable to 
hold these officials liable for losses of every kind. 

The bondsmen are men of character and wealth. Their names are 
submitted to the board of directors, or more generally to the offi- 
cers, for the purpose of making whatever investigation may be need- 
ful. If they do not approve of those offered, others must be pro- 
cured. In the event of a loss, which the bondsmen must pay, it is 
divided among them equally. 

When an official has been promoted he must give another bond, 
as the existing one does not protect the bank in the event of a 
fraudulent loss occasioned by him after his promotion. Recently, 
several cases have come to light of negligence on the part of di- 
rectors in not procuring new bonds after making promotions. 
Frauds were discovered, the bondsmen were sued, but the courts 
decided that the bonds given simply related to the conduct of the 
principals when holding the offices named in the instruments. 

Although the cashier is appointed by the board of directors, and 
is amenable to them and within their power of removal, he is also 
the representative of the stockholders. If, therefore, the president 
or directors should attempt to use the funds of the bank in an il- 
legal manner, it would be the duty of the cashier to prevent them 
from doing so if possible. His salary, and also that of the presi- 
dent, is varied by the duties and responsibilities assumed. In the 
larger banks the president, when he is the real manager, gets from 
five to fifteen thousand dollars a year, and the cashier from -five to 
ten thousand dollars. The country banks pay, perhaps, half these 
figures. These, however, are only crude approximations of the re- 
muneration received. 

As the cashier is the ostensible executive officer of a bank, he is 
presumed to have, in the absence of positive restrictions, all the 
power necessary to transact its business. Thus, in the absence of re- 
strictions, if he should procure a bona-fide rediscount of any paper 
of the bank, his endorsement would bind it, because he has the 
implied power to transact such business. But he could not, by 
virtue of his official relation to his bank, bind it as an accommo- 
dation endorser of his own oromissory note. Such a transaction 



74 PRACTICAL BANKING. 

would not be within the scope of his general powers, and if a per- 
son should accept an endorsement of that nature he could not 
recover of the bank, in case the note was not paid, without prov- 
ing that it specially authorized the cashier to make the endorse- 
ment. There is no presumption in favor of the delegation of such 
a power.* 

One of the first duties on reaching the bank in the morning is 
to attend to the correspondence. In some of the New York City- 
banks this is very extensive. Formerly the letters were opened by 
the cashier, but now they are given to clerks appointed for that 
purpose. The letters containing cash items are retained by the 
tellers. Those which must be answered by the cashier himself are 
termed " special letters," and are laid on his desk in the early part 
of the morning. These may be applications for discounts, proposals 
from new customers, orders for the purchase or sale of stocks and 
bonds, letters asking for advice concerning the standing of persons, 
opinions concerning the worth of certain bonds or stocks, or com- 
plaints concerning the conduct of the business of the bank. The 
answers are copied in a book kept for that purpose. 

The number of letters daily received by a bank having a large 
correspondence may be from two hundred to two thousand. Most of 
them are formal, containing a statement of enclosures, and can be 
easily answered. Printed forms are used in most cases both in send- 
ing such enclosures, and in acknowledging their receipt. Mere ac- 
knowledgments are not usually copied. 

All the checks received in the morning letters which can be 
sent to the Clearing-house are put in the package which is to be 
sent there, as will be explained hereafter. The amount thus re- 
ceived daily in some cases is very large, running into the millions. 

A cashier of one of the best-conducted banks in New York 
City has thus described the usual daily routine of his business. 
After examining a dozen papers to which the bank subscribes, he 
looks around to see that all the clerks are on hand and are pre- 
paring the exchanges for the Clearing-house. By a few glances he 
can tell whether the work is progressing satisfactorily. If a vacant 
place is seen, then it is presumed that a clerk is absent, and some- 
body must be found to supply his place. In the morning, almost 
all the clerks, except the bookkeepers and the heads of the depart- 
ments, are engaged in preparing the exchanges. In that bank the 
letters are so numerous that a large force is necessary in order to 
get the exchanges ready in time, and a vacancy must be speedily 
filled if possible. Sometimes he is obliged to assist himself. If a 
clerk does not appear within ten minutes past nine he is regarded 
late. 

* See the opinion of Ch. J. Waite in Savings Bank v. Partnlee, U. S. Supreme Court, 
1877. 



THE CASHIER. 75 

The special letters are brought to the cashier, and those requir- 
ing immediate attention are answered at once ; others at a more con- 
venient time. Then letters containing remittances are brought in 
from the bookkeepers. Those requiring special attention are laid 
on one side, and the instructions they contain are entered in a special 
letter book for the use of the corresponding clerk. For example, if 
an advice concerning a payment is requested, it is the duty of the 
corresponding clerk to make the necessary advice. The last duty 
which the latter performs in the day is to examine his special letter 
book, for the purpose of assuring himself that all letters requiring 
special attention on his part have been answered. 

When the directors meet, as we have seen, the cashier meets 
"with them. Besides, he examines loans secured by collateral, to 
reassure himself of the sufficiency of the security, or perhaps with 
a view of calling the loan, if the collateral that is securing pay- 
ment be of a kind which the bank does not wish to hold longer. 
He also examines the balance books and directs all the detail of 
the bank, keeping himself informed concerning the business done. 
Such are the leading features of his daily business, interspersed 
with frequent calls and interruptions. The afternoon hours are not 
so pressing, and the duties are more varied. 

When the money market is "easy," the duties of a cashier are 
very agreeable. The departments of the bank move along harmoni- 
ously. The dealers call and transact their business, and go away in 
good humor. If they want to get notes discounted this is done 
promptly. Very often social topics are pleasantly blended with 
their negotiations. But when the market shows signs of tightening, 
then these pleasant daily scenes are quickly changed. The amount 
of paper offered for discount is suddenly doubled, and the amount 
discounted is reduced one-half. Merchants are not satisfied with 
their usual preparations for future payments. They are determined 
to get more ready money, if possible, and eagerly demand more 
loans. These are the times that test the ability of the bank man- 
ager, and which prove his fitness or unfitness for his position. 

One of the duties of a cashier is to increase in every proper 
way the business of the bank. The banking business in this respect 
does not differ from any other. The profits in the business in 
most banks are made on the deposits. To increase these, there- 
fore, is the ambition of all concerned in the enterprise, and especi- 
ally of those who are the most active and responsible in its 
management. New accounts are eagerly sought. While, however, 
this is true, no well-conducted bank will blindly open an account 
with any person. He must be properly identified and introduced, 
and his character must be ascertained. Some banks will not take 
the accounts of persons introduced by a clerk of their own, for the 
reason that it is possible for him to be a confederate in some 



7 6 



PRACTICAL BANKING. 



plan with the introducer to defraud the bank. The clerk might 
be enabled to give him a fictitious credit or in some way assist 
him in defrauding the institution. If, therefore, a clerk should in- 
troduce a customer, an additional introduction would also be re- 
quired. If he were a merchant, the introduction of another mer- 
chant would be needful. If the applicant were not engaged in 
business, he might present such facts as would satisfy the cashier 
concerning his worthiness without further investigation. If the 
cashier should decide to open an account with him, he would be 
required to sign his name in a book kept for that purpose. All 
that the applicant has said concerning himself, and whatever can be 
found out about him afterward, is recorded in a book which has 
been already described. 

It is not possible for the cashier to supervise the books of a 
bank personally, but he should look at them frequently enough to 
satisfy himself of their correctness. Clerks sometimes get careless 
and negligent, and may carry over their work from day to day, or 
portions of it, if they are not watched. A supervision of this 
kind is needed in order to maintain the best discipline. Without 
it, clerks too often become careless and inattentive and delay their 
work in various ways. A cashier should have an intimate knowl- 
edge of the theory of accounting maintained by his bank, so that 
when he examines any book he will be able at once to understand 
it. We do not suppose that every bank has such a cashier, but 
unquestionably it should have. Bank-booking is generally quite 
simple, and no very high order of ability is required to master 
it. Banks differ from one another in many details of doing busi- 
ness, but in no case are these difficult to comprehend. 



THE PAYING TELLER. TJ 



CHAPTER IX. 
THE PAYING TELLER. 

Having described the duties of the cashier, we will describe those 
of the paying teller, which are regarded as next in importance. He 
is frequently called the first teller. Whenever the cashier is pro- 
moted, the paying teller usually succeeds to his place. It is some- 
times maintained, however, that the general bookkeeper and the cor- 
responding clerk ought to have an equally good chance for the office. 

The paying teller receives a higher salary than any other clerk, 
and the general bookkeeper the next highest. The paying teller's 
salary is larger, because he is trusted with more funds, and because 
the responsibility put on him to scrutinize signatures and to pay 
money is peculiar and very great. 

To him is committed the custody and disbursement of the funds 
of the bank. The amount of money in his keeping in a large bank 
may amount to several millions of dollars. In such a bank several 
apartments in the vault are appropriated to his exclusive use. A 
cashier said to the writer not long since that in his bank an aver- 
age amount of two million dollars was kept. The responsibility of 
keeping it was too great for one man. The vault where it was 
kept was divided into compartments. The paying teller had three, 
the receiving teller one, the note teller one, the collection clerk one, 
the discount clerk one, and the loan clerk two, and one was as- 
signed to the cashier. Two locks were placed on each of two 
of the three compartments assigned to the paying teller. The 
combination of one lock was known only to the cashier, and the 
combination of the other only to the paying teller. Consequently 
neither person could open the compartments without the knowl- 
edge of the other. In these compartments was kept the greater 
part of the reserve of the bank. In the third compartment, which 
had only one lock, the paying teller kept the balance of his cash, 
which changed from day to day, and which necessarily must be 
under his control. The cashier knew every combination except those 
of the paying teller. 

The paying teller is therefore the sole guardian of his cash. No- 
body ever thinks of invading his compartments ; but there are times 
when this may be necessary. He may be taken sick, and in that 



78 PRACTICAL BANKING. 

event another person must open the compartments to get the funds 
for carrying on the business of the bank. There are times, too, 
when investigations are made, annually or otherwise, all the com- 
partments are opened, and their contents are examined. But, ex- 
cept on such occasions, or when fraud is suspected, the teller's 
compartments are not opened unless he is present. The reader can 
well understand why such strictness prevails. If the cashier were 
accustomed to going to them, if any loss should occur, it might be 
very difficult to trace. The paying teller, therefore, has sole charge 
of his compartments, and alone is responsible when losses arise. 

The paying teller reaches the bank about nine o'clock in the 
morning. He unlocks his compartments, and the porter assists 
him, if necessary, in carrying to his desk the money which is 
likely to be wanted during the day. His compartment is then 
locked, and he returns to his desk. 

The different kinds of money paid by him are familiar to every 
one. It consists principally of United States notes and National 
bank notes. The former are issued by the Government, and are more 
frequently called " greenbacks ; " the latter notes are made by the 
banks themselves. Then there is coin, — gold, silver — " the dollar of 
the daddies," — and minor coins. Silver certificates are also paid, and 
less frequently gold certificates. They represent the amount of gold 
or silver specified on their face in the possession of the Treasury 
department, and which can always be obtained by presenting these 
certificates to the United States Treasurer at Washington, or to any 
assistant treasurer.* To facilitate payments, the money drawer is 
divided into sections which contain notes of different denomina- 
tions. A package of fives contains two hundred and fifty dollars. A 
package of tens five hundred dollars. A package of twenties one 
thousand dollars. There are other packages for varying amounts. 
When a check is presented for the amount of any packet, it is de- 
livered without recounting. For intermediate amounts, of course, 
the packets must be opened. 

All payments of money are made by one teller; consequently all 
the exchanges sent to the Clearing-house must appear in his ac- 
counts. It may be stated here that this is composed of the checks 
on other banks taken on deposit, and also those which are re- 
ceived in letters from other banks. Formerly, it was the duty of 
the paying teller to receive the exchanges in the morning, and to 
prepare them for the clearing house. This, however, is now the 
duty of the third teller, though sometimes performed by the second 
or receiving teller. In the largest banks the business, of course, 
is more subdivided than in the smaller ones. But in all cases the 
exchanges, by whomsoever prepared, are charged to the first teller. 
On this topic more will be said hereafter. 

* There are nine assistant treasurers in the United States. 



THE PAYING TELLER. 79 

At ten precisely the teller is ready for the business of the day, 
which consists in paying checks of depositors of the bank. These 
checks are usually given by depositors to other persons, but they 
also draw money themselves from the bank. In any case, an order 
or check is necessary to get it. 

It is a good rule when drawing a check on a bank or banker to 
make it payable to the order of an individual, firm, or institution, 
as the case may be. By this means the drawer is saved from the 
risk of loss, in case the holder of the check loses it — a risk to which 
all holders of checks payable to bearer are subject. 

In paying a note or acceptance to a bank or banker, instead of 
drawing bank notes for the amount, the payer should request the 
paying teller of the bank in which his funds are deposited to certify 
that his check is good for the amount, and hand it to the bank or 
banker who holds the note or acceptance. The check in all cases 
should be made payable to his or their order for the amount of 
the same. 

When making up a list of checks for deposit, the depositor 
should endorse them all, whether payable to bearer or order, with 
this phrase : 

" For Deposit." 

A. B. & Co. 

Or, " For Deposit at Arctic Bank." 

A. B. & Co. 

By this means the depositor protects himself from risk of loss by 
losing any of the checks ; for though payable to his order, and en- 
dorsed by him, they cannot be collected by any person except the 
clerk of the bank in which the deposits are made, and consequently 
they would be valueless in the hands of a stranger. 

In the case of checks payable to bearer, the safer plan is to 
write across their face "See endorsement," or "For deposit." In 
England, the custom prevails of crossing checks payable to bearer. 
This crossing consists simply of drawing across the face of the 
check two parallel lines, between which are written the words, "& 
Co.," after a blank space. The check can then be collected only 
through a bank or banker. 

To obviate the trouble of writing in full the words, " For de- 
posit," or " For deposit at Arctic Bank," a stamp may be used, 
leaving only the signature of the party to be written underneath by 
himself. 

A banking firm in San Francisco have the following rules printed 
on the inside of the front cover of their check books in order to 
impress on their customers the importance of using every precaution 
against fraudulent alterations or forgery of checks : 



SO PRACTICAL BANKING. 

GUARD AGAINST FRAUD ! 

Draw all your checks from your own book. 

Number your checks in regular succession. 

Write plainly. Use plenty of good black ink, and allow it to 
penetrate the fibre of the paper before blotting. 

Begin writing and figures close to left-hand margin, and leave no 
space for additions or alterations. 

See that the figures correspond with the body of the check, and 
that dollars are plainly separated from cents, thus : $ ioo T 7 5 ff or 
$ioo T ^. 

Keep this check-book in your safe when not in use. 

Deposit your pass book regularly for monthly settlement. 

In a recent address by an experienced banker,* he says that "a 
good bank clerk is one who, being thoroughly trustworthy, has a 
natural aptitude for figures, who is ready of hand and quick of eye, 
who can handle money neatly and expeditiously, and see in an in- 
stant whether what he handles is good or otherwise. A first-rate 
teller will detect a forged note or spurious coin by its very touch, 
even while he is handling thousands. Those who handle checks 
must acquire a rapid power of observing signatures, and be able to 
detect in an instant any attempt at fraud or forgery." 

About half-past ten the exchanges from the Clearing-house are 
brought in by the messenger. If the paying teller examined the 
checks received he would be obliged to neglect other work, for 
they frequently amount to several millions. Three men are often 
sent by a bank to the Clearing-house. One man, a messenger, 
carries the exchanges, another guards him, and the third is the set- 
tling clerk. The settling clerk sits at a desk assigned to him. The 
messengers start one after another in the manner fully explained 
in the latter part of this work. The settling clerk receives the 
envelopes, containing the checks on his bank, from the messen- 
gers of other banks as they are passed in to him. He keeps these 
in a certain order, and enters the amount from each bank in the 
appropriate place in a statement prepared for that purpose. As 
soon as the proof is made the balances are struck, and the mes- 
senger and assistant return to the bank. The settling clerk remains 
to make the final proof, and then he returns. The messengers 
bring with them the record of the balance, which is generally cor- 
rect. Sometimes, but not often, a small variation is discovered after 
further examination, which is always made. 

When the debit exchange is thus received it must be carefully 
examined. From what has been said already the reader will un- 
derstand that it consists of checks drawn on the bank to which it 
has been returned. The signature, endorsement, and whatever pe- 

* Mr. George Hague, General Manager of the Merchants' Bank of Canada. 



THE PAYING TELLER. ' 8 1 

culiarity a check may possess, must be examined before charging it 
to the drawer. This work is done during the intervals of other 
business, and not so much haste is required in completing it as in 
preparing the credit exchange for the Clearing-house, because that 
must be there by ten o'clock, otherwise a bank is fined for tardi- 
ness. 

The assistant bookkeepers check out the exchanges, though this 
work is sometimes done by the bookkeepers who post them in their 
ledgers, and bring the totals of their postings to the paying teller, 
who compares the record with the amount brought from the Clear- 
ing-house, which must be the same. 

Having now considered the duties of a paying teller with respect 
to preparing his exchanges, we proceed to consider another very 
important function performed by him, namely, the certifying of 
checks. 

This consists in writing or stamping on a check words to the 
effect that it is "good," which signify that it will be paid on pres- 
entation. 

When a depositor has enough money in the bank to pay the 
check presented for certification, the duty of the paying teller is a 
very simple one ; he will not hesitate to certify such a check. Re- 
quests of this kind are often made in order to render a check 
more negotiable. A person, for example, may be unwilling to re- 
ceive a check if drawn in the ordinary manner; but if certified by 
the bank on which it is drawn, no one will hesitate to receive it. 

The paying teller is often asked to certify checks for a much 
larger sum than the drawer may have on deposit, and the question 
then arises, " Shall I grant or refuse the request ? " This is often 
a very delicate question with him. When observing the National 
banking law his duty is very plain, for he is not permitted to cer- 
tify beyond the amount which the depositor may have in the bank. 
Under the State bank system, however, no such regulation prevails. 

Whenever the request is made the drawer expects to make de- 
ficiency good within a short time, generally before the close of the 
day. The paying teller is given a very wide latitude in granting 
or declining these requests. Usually he acts on his own authority, 
though, of course there is nothing to prevent him from getting the 
opinion of the cashier or president. In all cases the question is 
decided very quickly. If the person asking for the favor is an old 
customer, and has always been prompt in fulfilling his engagements, 
and whose account is a large and desirable one, the paying teller 
would not hesitate to certify. If he were a new dealer, and not 
well known to the paying teller, he would refuse. A good au- 
thority says, " The discretion of the teller in certifying checks is 
for the most part independent of his superior officers, and they are 
averse to interfering with it. In doubtful cases he refers to them 



82 PRACTICAL BANKING. 

for special instruction. Dealers apply to them also to reverse his 
judgment, but not often with success. Either of them would be 
likely to answer, 'The teller understands his business better than I 
do.' Such is the influence acquired by a competent and judicious 
clerk in this post that he obtains a degree of respect of the cus- 
tomers of the bank a little less than is accorded the president or 
cashier." 

In the absence of the paying teller the receiving teller occupies 
the place, and the same authority to certify. 

Certified checks are generally returned in the debit exchange on 
the following day through the Clearing-house. But very often they 
are remitted to other places and do not appear for redemption for 
a considerable time. They are charged, however, to the drawers 
immediately> for certification is regarded equivalent to payment. 

The city banks have a book in which these are recorded. The ag- 
gregate is posted to the credit of an account called " Certified 
Checks,'" which is balanced by the separate charges as the checks 
come in. When the checks are paid they are entered on the debit 
side of this account ; consequently it always shows the balance of 
certified checks outstanding. Formerly the dealer's ledger account 
was not charged with such checks until they were received for pay- 
ment. They might be out so long as to be forgotten by the teller 
and the bookkeeper, and it was not difficult to practice a fraud on 
a bank by checking out deposits to such an extent as to leave an 
insufficient sum for the redemption of a certified check when pre- 
sented. The losses to which the old methods gave rise led to the 
adoption of the existing plan of posting certifications. 

A great variety of checks are drawn and presented for payment. 
Every check requires more or less examination. One of the most 
common defects is the lack of a proper endorsement. Checks are 
not infrequently given to persons who know but little about such 
matters, and who forget to fulfill this requisite, or who, perhaps, are 
ignorant of the fact that a check is made payable to their order. 
Sometimes checks are post-dated, and are presented for payment 
before the time fixed by the drawers. Sometimes the dates are 
altered, and the teller must be satisfied whether the alteration is 
material or not. Sometimes a check is drawn for a larger amount 
than the depositor may have on hand, or the paying teller may 
think -so, and it is necessary for him to ask the bookkeeper what 
the balance of the depositor's account may be before paying it. 
Many irregularities and delays and inquiries may arise beside those 
mentioned. 

All checks that have passed the paying teller's examination are 
given to a clerk for entry on his check list, and are charged to their 
respective accounts in the ledger, except by those banks which use 
the Boston system of ledgers, to be hereafter explained, in which 
the check list is not used. 



THE PAYING TELLER. 83 

In paying checks the teller must think of three things : first, is 
the signature genuine ; secondly, is the account of the drawer good ; 
and, thirdly, is the person presenting the check entitled to receive 
the money. 

Much might be said under the first head. A great many forged 
checks are presented and paid. It is one of the terrors of banking. 
All kinds of devices have been invented for preventing forgeries. 
Various kinds of paper have been tried. The use of green ink on 
the United States and National Bank notes was to render their 
forgery more difficult. And indeed it has proved one of the most 
effective of preventives. Private marks in signatures are sometimes 
used. This must be said, however, concerning them : if a forger finds 
out what the private mark is and successfully counterfeits it, the 
paying teller is more likely to be deceived than he would be if 
no such mark were employed. 

One of the universal precautions observed by banks to prevent 
forgeries is to require every depositor to write his name in a signa- 
ture book. With this the paying teller compares doubtful signa- 
tures. Every drawer should always sign his name in the same 
manner, or, if varying it, should acquaint the paying teller with the 
variation. 

The paying teller must also satisfy himself concerning the genu- 
ineness of the endorsement on every check presented for pay- 
ment. 

The second inquiry is, has the drawer a sufficient deposit to pay 
the check. In every large bank several hundred depositors trans- 
act business with it. They have various times and methods of de- 
positing. Some draw many checks daily, and some only a few, or 
at rare intervals. The deposits of a bank, therefore, are constantly 
varying in amount. How then can a paying teller recall the condi- 
tion of every depositor's account ? 

We cannot describe how a paying teller performs this important 
part of his work any better than Gibbons has done. By carefully 
examining the deposits and checks of a dealer, it is easy to judge 
whether they are the proper returns from his business, or whether 
they are mostly transfers between different persons and accounts ; 
also to what extent his balances are maintained by loans and tran- 
sient accommodations. It is not difficult to ascertain whether a 
man uses his credit excessively or with prudence ; nor to get infor- 
mation of his personal habits, associations, and general character. 
The contact of the teller with merchants in all branches of trade 
affords many opportunities of inquiry which, with those in possession 
of the bank officers, enable him to classify the dealers, and thus to 
assist his memory. 

In the first-class stand those of known large capital, who never 
give out their own notes. They may sell on credit, but they al- 



84 PRACTICAL BANKING. 

ways buy for cash. Their deposits in bank are generally far greater 
than their immediate wants. When their checks are presented, the 
teller may safely pay them without reference to the condition of 
their accounts ; for if they should even appear overdrawn at the 
moment, he knows that they will make an ample deposit before the 
close of the day. In addition to this, they are likely to have a con- 
siderable amount of promissory notes lodged in the bank for collec- 
tion, which are collateral security. 

The middle class of dealers are the most numerous. Less inde- 
pendent with regard to capital, and relying on the bank for loans, 
they are yet generally safe and trustworthy. They will not trans- 
gress its rules, lest they forfeit its confidence. The teller pays their 
checks commonly without examining their accounts, depending on 
their integrity and self-interest to rectify possible errors by over- 
draft or otherwise. 

Next come the retail shopkeepers, mechanics and small manufac- 
turers. Many of this class keep accumulating accounts, and seldom 
call for loans ; or if so, to a very moderate extent. Separately, their 
deposits are not large, but in the aggregate, they add materially to 
the loaning facilities of the bank. They draw but few checks, and 
their accounts are not liable to sudden changes. The teller soon 
acquires such a knowledge of them as to remember which need 
watching; and the bookkeepers aid him in this by an alphabetical 
list of balances. An old bank gradually expurgates its ledgers of 
troublesome accounts, while a new bank, from competition for busi- 
ness, or non-acquaintance with the character of dealers, is likely to 
fall heir to them. 

By these precautions The paying teller is able to tell what checks 
ought to be paid and what ought not to be. Now and then an 
overpayment is made, but rarely. But a method of getting money 
from a bank is sometimes practiced, which though illegal is success- 
ful. Two persons who keep accounts in different banks may ex- 
change checks, and each person deposits the check of the other. 
Afterward, they draw out money on their own checks. Of course, 
if the checks originally given were paid, no loss would ensue to 
either bank, but in case they are not paid, the banks lose. When 
a check is thus deposited, if the deposit teller should have any 
doubt concerning the payment of it, he would inform the paying 
teller of the fact, and that eventually when the depositor presented 
his check for payment he would get no money. Such a thing would 
not happen with a new depositor, for a bank would not be likely to 
pay out money when it had received none. But when a person has 
been depositing for a considerable time, if he should thus slip in the 
check of another, the payment of which was doubtful or impossible, 
he might be able to check against it and in that way defraud the 
bank. This process of exchanging checks and drawing against them 



THE PAYING TELLER. 85 

is called "kiting," and the persons who practice it are regarded 
dangerous by a bank. No one would be likely to succeed a second 
time with the same institution; indeed, when a person is detected of 
doing it, his account is closed, and the bank refuses to have further 
dealings with him. 

Merchants in distant cities usually make their notes payable in a 
New York City bank and remit the money to pay them previous to 
their maturing. These remittances contain a letter of instruction 
which is delivered to the paying teller who pays the obligation 
when it is presented. After canceling it, the note is returned to 
the person who sent the money. 

Before paying an endorsed check the holder must be identified. 
A great many persons holding such checks present them for pay- 
ment and are surprised to learn that identification is necessary. A 
check drawn " payable to bearer " requires no identification, and if a 
bank should pay it, in no event would it be the loser; but if it 
should pay a check payable to order to the wrong person, then it 
would be required to pay a second time.- It is to guard against 
payment to the wrong person that checks are drawn payable to order. 
It is a form of security which should not be omitted. Even if a 
check should be lost or stolen, and the endorsement of the person to 
whose order it was payable was forged, and payment was demanded 
and made, the bank would be required to pay a second time to the 
rightful owner of the check. As this is the law, banks cannot ex- 
ercise too much care in paying checks to the persons who are en- 
titled to the money, and no one can reasonably complain if the 
utmost precaution is observed in making needful inquiries concern- 
ing those who present checks for payment. Nevertheless, such in- 
quiries are sometimes vexatious and annoying. It is not always 
easy to find a person who is willing to go to the bank, or who can, 
to identify the checkholder. A great many suits have arisen from 
time to time concerning the liability of banks for the payment of 
checks to the wrongful person. 

Endorsed checks paid to the Clearing-house are regarded as guar- 
anteed by the bank from which they come. Any bank will guaran- 
tee the endorsement of a dealer who is well-known to it. 

Drawers sometimes direct that checks which they have given be 
not paid on presentation. As a check on a bank is an order for 
the payment of money belonging to the drawer, he has the right 
to revoke it, and if such a revocation is given, and the bank does 
nevertheless pay, it assumes a new risk. It is therefore very im- 
portant to keep a record of the checks whose payment has been 
stopped. Books are prepared for this purpose, one for each ledger, 
and arranged alphabetically, so that the dealer's page may be referred 
to as quickly as possible. The direction to stop payment must be 
in writing, and all the particulars concerning the check on which 



86 PRACTICAL BANKING. 

payment has been stopped must be carefully entered with full ex- 
tracts from the letter giving directions to the bank concerning the 
matter. Some banks have a form which they send to their dealers 
to be filled out when they wish to stop the payment of a check. 

As soon as payment has been stopped, the notice is sent to the 
paying teller. He examines it, and puts his initial on it, and turns 
it over to the bookkeeper, who records the fact. He is the per- 
son to watch the matter, because he has the record. As soon as 
the check is presented through the Clearing-house, he compares 
the stop-check list with those received, and arranges them alphabeti- 
cally, and runs them over, and can speedily determine whether any 
check has been stopped. In some banks as soon as a check of 
this kind appears, he takes it immediately to the cashier. Nothing 
important is done without his action. 

There are other ways by which the bank may pay and receive 
checks than by the first teller. First, the note teller may receive 
them in payment of a note. Secondly, the receiving teller may take 
them on credit ; and, thirdly, the runner in payment of a draft. 
For example, if Smith has a balance of $5,000 in a bank he may 
draw that sum from the paying teller, or he may give his check 
for it to another person for deposit in the same bank, or he may 
take up a note with it at the note-teller's desk, or he may pay a 
draft to the runner with it. Hence he may draw out $15,000 though 
having but one-third of this sum on deposit. Of course such a 
transaction is fraudulent and rarely happens. But it is possible. 

If checks are not paid when sent through the Clearing-house they 
are chargeable to the depositor's account. But if a check is deposited 
in the same bank as that on which it is drawn it is paid when taken 
by the receiving teller, as truly as if the first teller paid money in 
discharge of it. In such a case if the check should not be good, 
the bank might be obliged to look to the drawer of it and not to 
the depositor. So, if a dealer A took up his note with the check of 
another dealer B on the same bank, the bank would look to the 
drawer of the check and not to the dealer for the money. 

When the time for serving dealers has expired, the paying teller 
makes up a statement of the day's business. This is called a 
Proof. This proof is a test of the accuracy of the day's transactions. 
The footings of cash on hand must agree with the " balance of 
cash." If there is any discrepancy it must be hunted for until 
found, and the necessity of going over figures and recounting cash, 
after the close of a hard day's work, is often an exasperating trial 
of the teller's patience. 

On the next page is tne paying teller's Proof of the Arctic 
National Bank for July 24th. The form of Proof differs in banks. 
Some tellers have a simple form, like that given here, others have 
a much more elaborate form : 



THE PAYING TELLER. 



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SB PRACTICAL BANKING. 



THE EECEIVING TELLER. 
CHAPTER X. 

This official ranks next to the paying teller, and usually succeeds 
him when he is promoted. 

The accounts of a bank may be divided into the following classes: 
general accounts, individual accounts, banks and bankers' accounts, 
city dealers' accounts and collection accounts. The general ac- 
counts are such as stock, expense, bills discounted, profit and loss, 
cash, interest, exchange and some others. 

The receiving teller receives all kinds of money and checks from 
the depositors. The book in which these deposits are entered is 
called the Receiving Teller's Cash Book. He has two books of 
the same kind for alternate use by the teller and the bookkeeper. 

The original entries of individual deposits are made by the re- 
ceiving teller, and the other entries are made by the note teller. 
The latter also receives the money paid for notes lodged for collec- 
tion. Both clerks are receiving tellers, the receiving teller is called 
the second teller, and the note teller the third. This rank they 
hold in the order of promotion. 

The deposits of merchants consist of the various kinds of 
money and checks already described, and other documents repre- 
senting money. The depositor is required to state the details of 
his deposit, and a form is given him to fill up, which saves labor 
in making the necessary statement. This blank is called a de- 
posit ticket. A teller will not receive money without it. The 
practice is different in country banks, as will be hereafter shown. 
If his cash does not prove at the end of the day, he re-examines 
these tickets and generally can find out where the error is. After 
proving his cash, the tickets are put into a bundle and marked and 
stored for future reference. 

A bank located in a large city has an exchange drawer or rack 
which is divided into numerous boxes. The checks of neighboring 
banks received for deposit are assorted, and those on each bank 
are put into their own box. 

The footings of the checks thus received are copied on the gen- 
eral list, and added together constitute the deposit teller's portion of 
the exchange which goes to the Clearing-house. 






THE RECEIVING TELLER. 89 

There are no complex calculations in the accounts of the receiving- 
teller. His duties are simple, and a high order of intelligence is 
not required to fulfill the duties of the place. Most of the de- 
posits, especially in the banks in the large cities, consist of mer- 
chants' checks, which are given in discharge of obligations or pur- 
chases. Some of these are certified before deposit and some are not. 
Whenever the depositor is well known, his checks are received 
without previous certification. But in other cases a certification is 
required. 

The reader should not confound the business of certifying with 
that of over-certifying. There is no legal objection to certifying a 
check to the amount of the depositor's balance. The ' National 
banking law prohibits the certifying of checks only in excess of the 
depositor's balance. The former kind of certification is very neces- 
sary. Many persons whose financial standing is not known give 
checks outside the banks on which the checks are drawn. 
When, therefore, the check of an individual bears the certification 
of the bank on which it is drawn, it will readily pass in making- 
payments, or be taken on deposit in any bank. But the check of 
an unknown person would be received with hesitation. It might 
be good, and it might not be. The certification of a check by 
the bank on which it is drawn adds much to its negotiability. 

The receiving teller of a bank may have reasons for requiring- 
checks to be certified of which the dealer may be ignorant and per- 
haps cannot be informed. Sometimes a very considerable degree of 
tact and caution are necessary in determining when certifications 
should be required. Dealers should not be offended unnecessarily, 
yet the safety of the bank must be regarded at all times. To 
protect it, and to retain the friendship and good will of dealers, 
is sometimes a difficult thing to do. Some persons are richly en- 
dowed with tact and power of discernment ; they always know 
what to say, and how to say it, when to be silent and not excite 
distrust or arouse the ill-feeling of dealers. By other persons such 
a knowledge of men and things is never acquired, though their 
knowledge in many ways may be great and useful. 

The receiving teller should know the condition of all accounts. To 
do this he must ask the bookkeepers what is their average run ; he 
should personally examine the ledgers, and also the deposits and 
checks, and make all other inquiries of persons in the bank or else- 
where who are likely to throw any knowledge useful in his depart- 
ment of the business. 

The receiving teller should examine the signatures, endorsements, 
dates, and other features of checks, the same as the paying teller. 
Dealers who are perfectly honest may be cheated by others, and de- 
posit fraudulent or " kiting " checks. The depositor should endorse 
his name below all others on the back of each check. The receiving 



90 PRACTICAL BANKING. 

teller should notice especially this last endorsement, for it is the key- 
to discovery if anything wrong should appear in the future history 
of the check. At times, when checks are rapidly received for de- 
posit, it is impossible to examine them carefully, and hence the 
greater need of looking at the endorsement of a depositor. When 
checks are finally paid where they are made payable, errors are sure 
to be detected, and of course the bank receiving them ought al- 
ways to know from what source they come, in order to know what 
to do with them should any imperfection be discovered. 

Reclamations between banks occur daily. Checks are dated ahead, 
or the dates are obscure or omitted. They lack intermediate en- 
dorsement, or they are endorsed by attorney without adequate proof 
of his authority. The sum in the body of the check may not cor- 
respond with the figures below, or may be entirely wanting. Checks 
sometimes are paid without signature. The paying teller recognizes 
a familiar style of writing and the omission of the name may not be 
detected. Sometimes they are thrown into the wrong box, and are 
taken to the wrong bank. These and many other errors happen. 
As soon as discovered the checks are sent back to their proper 
places for correction. 

Merchants sometimes keep accounts with more than one bank. 
This is done for several reasons. One reason is to obtain larger 
discounts. Some persons think that greater secrecy can be main- 
tained than by doing all their business with one bank. 

There is a protective feature in many accounts which prevent banks 
from losing by overdraft ; we mean when dealers have notes de- 
posited for collection. For, when paid, they are posted to the credit 
of their owner, and may make up a deficit in his account. Bank 
officers will sometimes admit temporary overdrafts in anticipation 
of the maturity of collection notes; or, what is better, make tran- 
sient loans, holding them as collateral, by which the irregularity of 
overdraft is avoided. The receiving teller takes no cognizance of 
this source of recuperation unless he finds a necessity to resort 
to it. 

The word " foreign " is applied by banks in New York City to all 
others. Most of the banks located there receive, on deposit, indi- 
vidual checks on banks at a distance. Merchants in Buffalo, for ex- 
ample, remit their checks on banks in that city to their creditors in 
New York, and there they are received as cash, perhaps, deducting 
enough to cover the exchange and the expense of collecting. They 
may be returned not good after several days, and, in such a case, the 
depositor must promptly redeem them. The interval between their 
deposit and their return is long enough to permit the dealer to close 
his account and leave the bank in the lurch. It follows that the 
receiving teller is practically discounting paper all the time. 

Drafts on individuals and on private bankers in New York are 



THE RECEIVING TELLER. 91 

received on deposit, but this throws on the bank receiving them 
the trouble of collecting them, while rendering it responsible for 
endorsements in which it has no interest. Dealers, therefore, are 
required to scrutinize and to collect them on their own behalf. 

The deposit teller must examine the bank notes received, lest 
counterfeit ones be taken. When the State banks issued notes there 
was such a great variety of them and they were often so poorly 
made that it was an easy thing to make counterfeits and to put 
them into circulation. It has been far more difficult to counter- 
feit the Government issues, and those of the National banks. 

There are publications whose special function consists in describ- 
ing counterfeits, and the deposit teller should study constantly 
such sources of information. "A man sent us a bill," said a cashier 
to the writer, not long ago, " that had been stolen before signature. 
Our clerks picked it out at once ; they had been notified concern- 
ing it." The National Bank Act requires that every National bank 
officer receiving a counterfeit or stolen bill shall cut it, or brand 
it, or stamp it "counterfeit" or "fraudulent," as the case may be- 
With the note in question the cashier said he did not wish to do 
this, because he might lose ten or twenty dollars. So he notified 
the depositor that the bill might be returned to him and sent it to 
the Comptroller of Currency at Washington for redemption. When it 
came back it was cut in many places, and stamped, " stolen," 
"stolen;" "bad," "bad." As soon as received the cashier sent 
it to the depositor, and wrote to him that the bill could not 
be credited on his account. He was very angry, and said he would 
like to know what conceited fellow in the department undertook to 
say that the bill was stolen. How could he know that it was ? 
The cashier simply replied that the clerks had picked the bill out 
when it came over the counter, that the information was derived 
from a counterfeit detector, a copy of which was sent to him. 

Not infrequently a claim is made by some depositor for a larger 
sum than that with which he is credited. How these differences 
arise is often mysterious. The deposit teller then makes a general 
and thorough revision of all his figures, checking them off by his 
deposit tickets and going over his additions. If the error cannot 
be discovered in this way, he sends a letter to each dealer whose 
deposit may possibly have been erroneously entered, and if the 
error still remains undiscovered the cashier is informed, "and perhaps 
the directors at their next meeting. The search is continued as long 
as there is any chance of detecting their error. 

Gibbons says there is a loose practice with some banks with re- 
spect to a deficit or excess of cash in the daily accounts of their 
tellers. Small sums accrue, which are thrown together in a box or 
drawer and applied to the payment of small deficits. These are 
not noted on the face of the day's transactions. He objects to 



92 PRACTICAL BANKING. 

this mode of conducting a banking business, and well he may. 
Nothing short of exactitude should be allowed in commercial ac- 
counts, and especially in a bank. A ledger account should be 
opened with each teller, in which any surplus should be credited 
under its actual date, or any deficiency charged, and this might be 
periodically balanced by a transfer to profit and loss. 

When deposits are made the depositor sometimes waits until 
the counting is finished ; on other occasions he leaves immediately. 
Some banks, though, require the dealer to wait until his deposits 
have been counted in his presence. Sometimes deposits are left 
containing the dealer's count on them ; if they are, when the re- 
count is made, should there be a deficiency, the depositor must 
abide by the teller's count. 

Depositors have a book in which is written on one side the dates 
and amounts of their deposits, and on the other the amounts that 
have been checked out and the dates when this was done. The 
depositor presents this book whenever he makes a deposit, and the 
amount is written therein. It is the general practice to write up 
these books at varying intervals of a month or more. 

The receiving teller rarely receives forged checks, as he transacts 
business only with the regular dealers. Of course a dealer may de- 
termine to be a knave, and to practice a fraud on a receiving teller, 
but happily such cases are very infrequent. 

Toward the close of the day depositors multiply in number. 
" First come first served " is the rule ; a row is formed, and the 
last comer must take his place at the end farthest away from 
the receiving teller. Formerly, when the State banks issued notes, 
and counterfeiting was a more general practice, the business of as- 
sorting and counting bank notes was a more difficult practice than 
it is at present. No assorting is done now when notes are received. 
The teller merely watches sharply for counterfeits. Afterward the 
notes are assorted into packages of various denominations without 
regard to the bank issuing them. Such is the perfection of the Na- 
tional bank-note system, that the note of one bank is as good as 
that of another, and hence there is no occasion for noticing their 
parentage. ' 

The checks on country banks are handed over to the correspond- 
ing clerk, who lists them in his letters and in mail blotters for 
charge to the appropriate banks in the collection ledger, unless they 
are on dealers of their own bank. In that case they are often 
charged directly to the general account of the dealer. 






THE NOTE TELLER. 93 



CHAPTER XL 
THE NOTE TELLERo 



The note teller receives the letters and the money for all prom- 
issory notes liquidated at the bank. In small banks his duties may 
be blended with those of the receiving teller. And again the duties 
of both may be performed by the paying teller. In other words, 
one person may perform the duties assigned in a larger bank to the 
three beside several assistants. 

There are two kinds of notes. Those which are discounted by 
the bank, and those which are deposited by the owners for collec- 
tion, and for which they are to receive credit when they are paid 
The former are called bills discounted, and the latter collection 
notes. 

In large banks at the present day the note teller does not have 
charge of the notes until the morning of the day of maturity. The 
bills discounted are handed to him early on the morning of the 
day of their maturity by the discount clerk. They are usually 
strapped together, and the total amount of the notes is stated in 
pencil on the strap. When collected, this total amount is credited to 
" bills discounted " in the general ledger. Should any of these notes 
not be paid, of course the amount to be credited to " Bills Dis- 
counted " will be just so much diminished. 

The collection clerk each morning hands to the note teller the 
notes he has maturing, and with a ticket for each note, or with a 
ticket for each owner of notes. 

When the notes are entered they are arranged by the note teller 
in the order of the names of the payers. The note teller is now 
prepared to receive payment of the notes whenever debtors ap- 
pear. The notes payable at the bank are retained by the teller 
in his drawer, and those payable at other points in the city are 
sent out by messengers for presentation. 

The note teller reaches the bank in time to make the entries of 
remittances by the morning's mail before the institution is opened to 
the public. The following is the usual form of letter received now- 
a-days, with abbreviations : 



94 PRACTICAL BANKING. 

Delaware River Bank, 

Philadelphia, June, 30, 1884. 
H. Morse, Esq., Cashier. 
Dear Sir : 

Enclosed find for our credit : 

Peters, Cashier on Com $ 9,400 oo 

Ruffin, » // Am 10,000 00 

Luther, // // Am. Ex 1,57560 

Simpson, « // Met 14,263 70 

Corse & Co Third Nat 1,800 00 

Kerr Phx , 2,740 00 



$39,779 30 

We add for collection : 

Brown on Thompson 3 ds $ 1,250 00 

Green Burr & Co 10 ds 3,263 20 

Wilson July 10 2,249 75 

White 90 ds 242 90 

Kent Albany July 25 506 00 

Mother Buffalo Aug. 3 t,ooo 00 

Gray & Co . Hartford sight 2,600 00 

Roberts Port 10 ds 1 ,050 00 

Yours truly, 

J. Jones, Cashier. 

To explain them fully, these items for credit mean checks as fol- 
lows : 
J. Peters, Cashier, Sussex Bank of Milford, on N. Bk. of Commerce, N. Y. $9,400 00 

T. Ruffin, Cashier, Bank of Fullerton, on Bank of America 10,000 00 

Corse & Co., Richmond, Tenn., on Third National 1,80000 

And so on. 

The collection items are drafts or notes, thus: 

A. Brown & Co., draft on Thompson Bros, at 3 days' sight $1,250 00 

P. Green & Sons on Burr & Co., 10 days' sight 3,263 20 

Wilson & Co. , note due July 10 2,249 75 

Kent Bros. ( payable at Albany ) July 25 506 00 

Draft on Gray & Co. , Hartford, sight 2,600 00 

This letter is given to the note teller, who writes his initial as 
his receipt for each check that he takes from it for credit to 
the remitting bank. In the same way, all letters containing cash 
documents are passed into his hands, and the proper entries are 
made from them. In the Boston system of bookkeeping, which 
will soon be explained, the entries are made from the letter itself. 
The total footing of the letter is first posted in the Note Teller's 
Cash Book, the letter is then handed to the bookkeeper who again 
posts the total opposite the dealer's name, and afterward the letter 
is handed to the corresponding clerk, who brings all the letters to 
the cashier for examination. In many banks, the president goes 
through the letters received the previous day; in other banks, the 
president is shown every unusual letter. It is important by this 
system to have the letters footed, because the letter is the original 
entry, and every footing is from the letter. The totals of the 



THE NOTE TELLER. 95 

letters are posted by the note teller, and again by the bookkeeper, 
and they compare the footings. 

Some banks send notices of the time when a note falls due. For- 
merly this was done more generally than it is now. The business 
has become too large for banks to continue it. Persons who give 
notes are supposed to know when they become due, and should be 
prepared to pay them without notification. In some cities the cus- 
tom seems to prevail of making notes payable at any bank in 
town. Especially is this the case in Boston ; where it prevails notices 
would seem to be necessary. In New York City, however, it is 
customary for merchants and other persons to make their notes pay- 
able at a specific place, and to have the money there to pay them 
at maturity. 

When notes are paid, a certified check may be used, or money. 
A teller should preserve the notices and memoranda of his trans- 
actions in the order of their occurrence until his cash is proved 
at the end of the day. They may serve a useful purpose in 
refreshing his memory or in detecting any error that may happen. 

When a note is paid, the bank stamps thereon a notice like the 
following: 

" Paid at the Merchants' Bank." 

Of course a great many incidents and irregularities happen in con- 
nection with this department. The persons who ought to pay per- 
haps forget where the note is payable, or when, or the amount. 
Sometimes the notice is delivered to the wrong person. Some mer- 
chants write their notes payable at. the bank where they keep their 
account. 

After the last payer is dismissed the note teller closes his gate 
erases from the Cash Book and Discount Tickler the notes that 
remain unpaid, and delivers them to a Notary Public for protest, 
except where no endorser is to be held. 

The protest consists in presenting the note at the place of busi- 
ness of the drawer, or wherever it is made payable, and demanding 
the money for it. If this be refused the note is attached to a printed 
legal form, containing the following particulars : First, a true descrip- 
tion of the note, so as to ascertain its identity ; second, an assertion 
that it has been duly presented to its maker, or place of payment, at 
maturity, and dishonored ; third, the holder, or the person giving the 
notice, looks to the person to whom the notice is given for pay- 
ment and indemnity. This statement is essential to establish the 
claim or the right of the holder or the party giving notice, for 
otherwise he will not be entitled to any payment from the en- 
dorser. It will be sufficient, indeed, if the notice sent necessarily or 
even fairly implies by its terms that there has been a due present- 
ment and dishonor at the maturity of the note, but mere notice of 
the fact that the note has not been paid affords no proof whatever 



96 PRACTICAL BANKING. 

that the note has been presented in due season, or even that it 
has been presented at all. The note is returned to the bank on 
the following day. The Notary sends notice of the protest to all 
the endorsers and to the drawer of drafts, which advises them of 
their liability for the payment in case of the continued default of 
the first debtor. If the notes should be paid when presented by the 
Notary he returns the money to the bank on the next morning. 



THE DISCOUNT CLERK. <?J 



CHAPTER XII. 
THE DISCOUNT CLERK. 

As we have seen, the profits of banking are composed of interest 
on money — in other words, of interest, discount and exchange. 

The loans are called discounts, because the interest is paid in ad- 
vance and deducted from the amount due to the borrower. But if 
a bank were to deduct seven dollars from a hundred dollar loan, pay- 
able a year after date, the bank would receive seven dollars for 
a loan of only ninety-three dollars. If the bank paid the borrower 
S 93.46, this sum at seven per cent, interest for a year would amount 
to a hundred dollars, the sum expressed in the note. Banks are 
permitted by law to deduct interest in advance in this manner, at 
the rate prescribed, without rendering themselves liable for usury 
The difference, therefore, between interest and discount in bank 
practice is, the former is a sum of money payable for the use of 
money at the end of a given term, while discount is the money 
reserved from another sum at the beginning of the term for which 
it is loaned. 

When a bank discounts a note the interest is deducted at once, 
and the borrower receives credit for the balance. 

The Offering Book, containing a record of the notes offered for 
discount, we have described elsewhere. The form of Offering Book, 
however, is not the same in all banks. Some dispense with the 
balance column, and some add another, showing the liquidations be- 
fore the next discount day. Some banks enter in this book loans 
already made to the borrower so that directors may have before 
them, when they meet, all the essential facts necessary to transact 
their business intelligently. 

Accepted paper is now taken by the discount clerk, who first ex- 
amines the notes for filling and general character, and then "times" 
each note, /. <?., writes in pencil on the back the due date of the 
note. The notes are then entered in what is termed the " Dealers' 
Discount Book," which usually is ruled to permit, first, the maker's 
name, then the endorser's, the place of payment, due date, and the 
number of days to run, discount, amount of exchange charged, and 
net proceeds. For the latter amount there is a separate column for 
each of the ledgers, so that all the amounts belonging to any one 



98 PRACTICAL BANKING. 

ledger appear only in one column. From this discount book the 
discount clerk makes his statement, and posts his ledger, or bill 
book, and his Ticklers. Before putting away the notes he "checks" 
them back on the "Ticklers." These "Ticklers" are very important 
books. Why they have been so called is scarcely known, but prob- 
ably from the habit of ticking or checking off the entries. There 
is usually one tickler for each month in the year, and one or more 
pages for each day, with the pages on the left side reserved for 
notes payable in the city, and those on the opposite side for notes 
payable out of town. The total footings of these Ticklers will pre- 
sent the total amount of " Bills Discounted," and the proof of these 
total daily amounts is taken at least as often as once each month, 
and proved with the General Ledger. 

There are discount ledgers, which are opened in the same manner 
as personal ledgers, but embrace the accounts only of customers who 
g;et notes discounted. They contain a record of every note dis- 
counted, the date of discount, the endorser or security therefor, and 
the time of maturity. They also show the liability of each cus- 
tomer as endorser for others on discounted paper. It is desirable 
to keep this record to guard against losses. If two dealers should 
exchange notes or endorsements and put them in the same bank, 
these books would bring the fact to light. They are placed on the 
directors' table on discount days. 

From these ledgers the discount clerk ascertains the amount of 
discounts set down in the Offering Book. He keeps daily super- 
vision over them, cancelling the paid notes as fast as they ma- 
ture, by drawing a line across the figures without obliterating the 
record. 

Some banks number their notes on the back and end with red 
ink, and file them in packets. A good many banks, however, do not 
number their notes, and are careful not to mar them, even by a pin 
hole, so that if, for any reason, they should wish to dispose of 
them, this could be done without the paper showing any indications 
of having been in the possession of a bank. For the same reason 
also, it is not desirable for a bank to have a note made payable 
to its own order. When thus made, it would appear on its face 
to be given in liquidation of an obligation of the maker to the 
bank. It is, therefore, desirable that notes be made to the maker's 
order, and endorsed to the bank if taken direct from him. 

Notes are also transcribed on the Discount Ticklers ; each note is 
under the date of its maturity, with a number and name of the 
payer and amount. The Ticklers, which, as previously explained, 
are books of monthly duration, continue to receive additions by 
new discounts until within a few days of the transpiring date. 
They are kept added in pencil until that time and are finally closed 
in ink. 

In some banks notes are filed without number. Those of each 



THE DISCOUNT CLERK. 99 

day are kept in a separate packet, and the packets are arranged in 
a consecutive order of dates. This plan is regarded more convenient 
when there are very many notes. 

The discount clerk has the possession of the greater part of 
bills receivable, in which the resources of the bank are invested. 
These are in his custody, are deposited by him at night in a com- 
partment of the vault assigned to him, and taken out on the next 
morning by himself. If any of the officers wish to examine notes 
they do so in his presence, or require him to show them. By this 
method his responsibility is kept distinct from that of the other 
clerks and officials. 

The discount clerk is in frequent intercourse with the customers 
of the bank. The offerers apply to him after adjournment to find 
out what disposition has been made of their application. We are 
now speaking of the larger banks where such a clerk is employed. 
In a small bank the cashier may transact the entire business de- 
scribed in this chapter. When he appears at his desk to answer the 
questions of applicants on occasions when the money market is 
tight, his duty is by no means a pleasant one. Customers press to- 
ward his gate at the earliest moment, to ascertain whether their 
offerings "have been accepted or rejected, and the letters A and R 
enable him to give a very short answer. When notes are rejected 
they are returned to the offerer in the original envelope. 

The discount clerk, as will be seen from the foregoing descrip- 
tion of his duties, does not receive or pay out any money. It is 
not easy therefore for him to perpetrate a fraud on the bank. Gib- 
bons relates an instance which occurred in the second Bank of the 
United States. The discount clerk selected some notes after they 
had been discounted and filed away, which he thought would be 
least likely to be wanted before maturity, and through the help of 
an outsider, hypothecated them for a loan of money. When the 
time of maturity drew near he selected others of longer date, and 
substituted them for those first abstracted, which were restored to 
their proper places in the files. The trick was discovered by the 
maker of one of the hypothecated notes, who called at the bank to 
pay it before maturity. 

Sometimes a bank will rediscount a portion of its notes with 
other banks. It may desire to get possession of more funds, in 
order to pay the demands of depositors, or through fear of an in- 
creased demand. In other words, the loans which it may have 
made are transferred to another institution. 

Discounted notes payable in other cities are transmitted by mail, 
and when advice of their payment is received a journal entry is 
made, charging the collecting bank and crediting " Bills Discounted " 
in the usual commercial form. Discount notes which are payable 
in other cities, are transmitted two or three weeks previous to their 
maturity. 



IOO PRACTICAL BANKING. 



CHAPTER XIII. 
COLLECTIONS. 

An immense number of notes are given in liquidation of purchases 
and other obligations, and which sooner or later are delivered to 
banks for collection. Our readers will understand from what has 
been already said, that many of the notes thus received by the de- 
positors of a bank are offered for discount, and the mode of pro- 
cedure with regard to them has been explained. But the remainder 
are lodged for collection, and their future history needs explana- 
tion. 

They are first entered by the collection clerk in the customers' 
book, after careful examination. Informality of endorsement, obscur- 
ity of date, or other accident might render the bank liable to the 
holder, although it was acting merely as a collection agent. The 
clerk must scrutinize every note carefully before entering it, and 
must always require the final endorsement of the owner, so that 
it may not be placed to the wrong credit when due. Banks gen- 
erally will not receive for collection notes that have been dis- 
figured or changed after issue by the drawer ; nor will they receive 
them from strangers on any terms. 

Promissory notes are transferred by endorsement from one mer- 
chant to another in settlement of debts, until the time of their ma- 
turity, when, of course, they must be presented for payment. There 
are several varieties of endorsement which may be briefly men- 
tioned. An endorsement may be ( i ) in full, or ( 2 ) in blank ; it 
may be (3) absolute, or (4) conditional; it may be ( 5 ) restrictive; 
it may be ( 6 ) without recourse on the endorser ; and there may be 
(7) joint endorsements of the instrument; (8), successive en- 
dorsements, and (9) irregular ones. An endorsement in full men- 
tions the name of the person in whose favor it is made, and to 
whom, or to whose order, the sum described in the note is to be 
paid. An endorsement in blatik consists simply of the name of the 
endorser written on the back of the instrument. " The receiver of 
a negotiable instrument endorsed in blank, or any bona fide holder 
of it, may write over it an endorsement in full to himself, or to 
another, or any contract consistent with the character of an en- 
dorsement, but he could not enlarge the liability of the endorser 



COLLECTIONS. IOI 

in blank by writing over it a waiver of any of his rights, such as 
demand and notice."* By an absolute e?idorsement the endorser binds 
himself to pay on no other condition than the failure of the prior 
parties to do so, and of due notice to him of their failure, while 
a conditional endorsement contains some other condition to the en- 
dorser's liability. An endorsement may be so worded as to restrict 
the further negotiability of the instrument ; it is then called a re- 
strictive endorsement. The words " for collection," which are fre- 
quently written on notes that are put in a bank to be collected, 
render the endorsement restrictive. The endorser in such a case 
may prove that he is not the owner of the note, and did not mean 
to give a title to it or its proceeds when collected. Such an en- 
dorsement merely makes the endorsee agent for the endorser in col- 
lecting the note. The sixth kind is a qualified endorsement, or 
endorsemeiit without recourse. This consists in writing the words 
" without recourse," or " at the endorsee's own risk " on the 
back of the note. The endorser is then a mere assignor of the title 
to the note, and is relieved of all responsibility for its payment. A 
joint eiidorseinent is made when a note is payable to several per- 
sons who are not partners. Successive endorse7iients are those made 
by several persons on a note, the legal effect of which is to subject 
them as to each other in the order they endorse. The endorsement 
imparts a several and successive, and not a joint obligation. 
Lastly may be mentioned irregular endorsemejits, which may originate 
in various ways. But in all cases an endorser guarantees the gen- 
uineness of all the preceding endorsements. 

The clerk marks on each note the date of its maturity. If he 
should mark it one day too late, and the drawer should fail to 
pay, the bank would be liable to the owner, because the notice of 
the protest to the endorsers would be too late to hold them. A 
careful clerk will revise his "timing" of notes so as to guard against 
any error of this kind. 

Dishonest customers have been known to mark a wrong date of 
maturity on notes for the purpose of " catching " the bank ; in other 
words, of making it liable. The bank could not escape by showing 
that the wrong date was the customer's, without proving that he 
intended to render the bank liable. It must be exact in its own 
business, and cannot escape by showing that it adopted the errors 
of others. 

After the notes have been "timed," they are numbered on the 
back and end, and recorded in the Collection Register, a page of 
which is herewith given. From this book the notes are copied 
into the Ticklers. 

Notes should be deposited ten days or longer before maturity, so 
that there may be time enough to pass them through the several 

* Daniel on Negotiable Instruments, § 694. 



102 PRACTICAL BANKING. 

books in the bank, and to serve notices on the payers, though 
this practice, as we have already remarked, is not so general as it 
once was. Merchants, however, are constantly receiving short-time 
drafts, and these cannot be deposited long before the time of pay- 
ment. Other circumstances often prevent their deposit until very 
near the time of maturity, for example, the pledging of them to 
secure loans. 

The clerk of this department is responsible for the safe keeping 
and production at all times of any note or draft deposited in the 
bank. If payable in the city where the bank is located, he can 
produce it ; if sent elsewhere for collection he can show what he has 
done with it. 

Notes or drafts which are payable in another place are in some 
banks recorded in a Foreign Collection Register. In those doing 
a smaller business the regular Collection Register may be made to 
suffice by a special column ruling. In the Foreign Collection Reg- 
ister are recorded the place of payment, and the name of the cor- 
respondent to whom the paper is sent for collection, with the date 
of its transmission. In a small bank a column is provided in 
which to record the fact and date of payment, or of return if un- 
paid. In other small banks, the Foreign Collection Register may 
contain the only record of such paper, obviating entries against the 
collecting bank, until payment is advised. 

It is the practice of many banks to make their collections 
for a district or county through one bank which has estab- 
lished correspondence with all parts of it. But the large banks 
desire so far as possible to make their collections direct. Their 
notes are then presented more promptly, returns are received more 
quickly, and country business is cultivated more successfully by thus 
having reciprocal accounts. 

When a bank is employed by another to collect notes within a 
particular district, the clerk opens another book and records on the 
page appropriated to the National Bank of Albany, for example, all 
notes that fall within the circuit allotted to it. He stamps or 
writes on the back of each note below the other endorsements, 

"Pay National Bank of Albany, Albany, N. Y., 

on order, for collection for account of 

Arctic National Bank, N. Y. 

Thomas Jones, Cashier." 

After the letter enclosing the notes has been copied it is sent by 
mail to the collecting bank. 

When drafts or notes for collection are payable at places where 
the bank has no regular dealer, they are sent to a bank in such 
place "for collection and remittance." If there is no bank or 
banker of established credit there, the collection would not be re- 



COLLECTIONS. 103 

ceived. When the note or draft is paid, the collecting bank remits 
at once a check for the amount, less the charge for exchange, if 
any. The check will be on a bank either in a city from whence 
the collection has come, or on such other point as instructed by 
the bank owning the paper. The bulk of checks remitted for col- 
lections are drawn on New York, and many on Boston or Phila- 
delphia. Such collections are desirable at points where a surplus 
of exchange is created, as they afford a means of working it off at 
a small profit. 

The usual form of letter transmitting collections is as follows : 

Buckeye Bank, Dayton, O. 
July 5, 1884. 
E. Simpson, Esq., Cashier, 
Tuscaloosa, Iowa. 

Dear Sir: — We enclose for collection and remittance, 

O. Kane on Smithers & Co., sight $7 50. 

Patterson & Brown Aug. 20 % 1,000 & exchange. 

Yours respectfully, 

F. Banders, Cashier. 



104 PRACTICAL BANKING, 



CHAPTER XIV. 
THE BOOKKEEPER. 

Mathematical accuracy is one of the prime virtues of an account- 
ant. It is nowhere more important than in bank bookkeeping. 
While the affairs of a bank are running along smoothly its cus- 
tomers are given little opportunity to judge of the capability and 
thoroughness of those who manipulate the books of accounts. But 
when the institution comes to grief, and the creditors are waiting 
in painful suspense to learn the fate of their deposits, the opportu- 
nities for determining how well the books have been handled are 
excellent. It is at such times that the public are taught to appre- 
ciate the value of accuracy, system and promptness. When it re- 
quires days, and, as is sometimes the case, weeks, for the book- 
keepers to make up a statement of the condition of a suspended 
bank, the inference may be fairly taken that something is radically 
wrong. It may be the imperfections of the system in vogue, or 
possibly a weakness in the brain of the bookkeeper. 

A good theory to follow in bank bookkeeping is one which each 
day presumes that the bank is to suspend payment before time for 
the doors to open the next morning. And not only so, but also one 
which presumes that the directors or proprietors are to require a com- 
plete financial exhibit of the bank's affairs within twenty-four hours 
from the time the suspension is announced. There can be no good 
reason why a complete statement should not be presented within 
a few hours at any time, if no crookedness has been practiced. It 
is not only important that the work of each day should be finished 
before the doors open on the morning of the day following, but 
that the work should be so performed as to enable the bookkeepers 
to make up a full exhibit without delay. Even in cases of defalca- 
tion end crookedness on the part of any one individual where sev- 
eral officers and clerks are employed, there would be no reasonable 
excuse for requiring days, and often weeks, in preparing statements 
for the public. Simplicity in method and an efficient clerical force 
will obviate the present prevailing difficulties. 

It is not good economy for the manager of a bank to expect one 
clerk or bookkeeper to perform the labor of two. There can 
be as much of a mistake in employing not enough as too 
many. But, before considering the number to be employed, 



THE BOOKKEEPER. I05 

the fitness of each for the position should receive attention. Above 
all things, know that each and every person doing clerical work in 
a bank is thoroughly qualified. Then see that the force is sufficient 
to have the work kept closely up, and require in all cases that no 
part is neglected. We would say to the bookkeeper of a bank : 
Demand that you be allowed a sufficient force to do the work punc- 
tually and in the best manner. If your request is refused it is bet- 
ter to resign than take chances in doing your duty when you know 
that important parts must be neglected. Banks show, as a rule, 
more wisdom in this respect than commercial houses. Yet there 
are but few banks in which an improvement might not be made by 
an addition to the regular force. This improvement would redound 
to the advantage of stockholders as well as the bank's customers. 

The method of bookkeeping practiced in a bank may have much 
to do with the force necessary for performing the work properly. 
We cannot undertake in this treatise to go into the details of all the 
different systems in vogue. It is our aim, however, to give such ex- 
planations of the methods in most general use as will enable the 
reader to understand the principles and be able to choose a plan 
best adapted to his special needs. Important changes and improve- 
ments in bank as well as commercial bookkeeping have taken place 
within the past ten or fifteen years. A few years ago banks re- 
ceived a fair revenue from the sale of exchange. Remittances from 
one part of the country to another are still made almost entirely by 
means of bank drafts, but since the establishment of a currency 
which is at par throughout the United States, the rate of exchange 
cannot much exceed the cost of transmitting money by express, and 
the business of dealing in exchange by banks is no longer consid- 
ered an important item of revenue. The change has had its influ- 
ence upon bank bookkeeping. 

The tendency has been, in bank bookkeeping, to abridge the work. 
There is still room for improvement in many institutions in this di- 
rection. It is a good idea, in all places where possible, to avoid re- 
writing items and amounts. We will first turn our attention to 

ACCOUNTS OF DEPOSITORS. 

The depositors' accounts, in an institution doing a general bank- 
ing business, absorb much the greatest attention of the book- 
keepers. Eternal vigilance is a prime virtue in their manipulation. 
Considering their numbers, the infinite multiplicity of items they 
represent, and the vast sums received and disbursed upon them, 
the small number of mistakes made in their keeping is worthy of 
consideration. It demonstrates the possibility of wonderful accu- 
racy. The errors, at least those discovered, will not average one in 
a thousand transactions. 

There is, perhaps, an unusual degree of accuracy exhibited in the 
work upon this class of accounts. The reason is obvious. An 
error, no matter how slight, is almost certain to be discovered by 



io6 



PRACTICAL BANKING. 



the depositor. Whether or not the error is reported to the bank of- 
ficials, such a discovery is painful to the bookkeeper. It forms a 
basis for suspecting other blunders ; it may, too, involve serious 
difficulty. These are some of the penalties constantly in view, and 
they, no doubt, exert an influence. 

In all branches of an accountant's work, the probability that an 
error, if made, will be discovered by some one other than himself 
will invariably cause some weight upon vigilance and thoughtfulness. 
Where an error, if made, will be detected by its author, as is the 
case in some parts of the bookkeeper's work, and may be corrected 
before reaching others' eyes, a feeling of indifference is more apt 
to manifest itself. This suggests the importance of rotating the 
force employed in large banks, so that the work of each one will 
be examined by some one of the other employees. In England it 
is almost the universal practice to have a professional accountant 
go over, at stated periods, all the work of a bank. The plan is 
not much followed in this country, but it is being discussed in 
many quarters. Experience has shown that the examinations made 
by Government officials are not a sufficient guarantee to stock- 
holders and depositors that the published exhibits are faithful show- 
ings of the banks' condition. 

One cause that has had a tendency to bring about a high stand- 
ard of accuracy in the treatment of depositors' accounts is that of 
special study in this direction. Much attention and skill have been 
directed to devising plans for keeping this class of accounts. We 
will presently illustrate some of these inventions. But let us first 
consider the elementary functions of a depositor's account. 

THE DEPOSIT SLIP. 

In the tenth chapter 
of this work are de- 
scribed the duties of the 
receiving teller. De- 
positors come oftener in 
contact with the receiv- 
ing teller than with any 
other employee. It is 
this teller who receives 
the deposits. On page 
92 appears a brief de- 
scription of the deposi- 
tor's pass-book. When 
making a deposit the de- 
positor fills out a print- 
ed blank, upon which he 
writes his name and a de- 
scription of items mak- 
ing up his deposit, thus : 



Deposited by 

George Washington 

IN THE 

National Bank of Valley Forge. 

Philadelphia, July 4, 1886. 




Dollars. 


Cents. 


Bills 


650 
310 
280 

725 


40 
50 


Checks 




1,965 


90 



THE BOOKKEEPER. 



J 07 



This " Deposit Slip," with the funds to be deposited and the de- 
positor's pass-book, are handed to the receiving teller. The bills are 
counted and the items examined and checked off by the teller, who 
charges the bank in the depositor's pass-book with the full amount 
of the deposit, and files the slip ready for the bookkeeper. These 
slips are the bank's vouchers for the transaction. 

THE DEPOSITOR'S PASS-BOOK. 

The depositor's pass-book is a small account book. Upon the 
left-hand page, or debit side, the deposits are entered ; the right- 
hand, or credit pages are used to enter up the checks of the de- 
positor. It is the bookkeeper's duty to write up and balance the 
depositor's pass-book when left at the bank for that purpose. The 
depositor's account in the bank's ledger furnishes the data for 
writing up the pass-book. In the ledger account, however, the de- 
posits which, in the pass-book, appear on the debit side are entered 
on the credit side. The checks are entered on the debit side of 
the ledger account. The reason of this transposition is, that the 



The Arctic National Bank in Account 
Dr. 



with Richard Whittington. 
Cr. 



Jan. 2 

3 

4 


E. K 

J. C 


10,000 

400 

2,000 


1,324 05 
208 40 

12 Vouchers 
returned. 

Balance 


17520 
96050 

2,100 
137 10 

5,420 50 


100 

4675 

1050 

305 10 

1,240 80 

371 10 


E. K 


Balance 




12,400 


12,400 00 


Jan. s 


371 10 





The letters opposite the dates on the debit page are the initials of the teller who 
received the deposit. On the credit page are several columns in which the amounts 
of the checks or vouchers are entered. These checks are returned with the pass- 
book to the depositor. The balance, after having been added to the footings of 
the checks, is carried to the debit of the account preparatory to continuing the 
transactions. 

pass-book represents the depositor's account with the bank, while 
the bank's ledger shows the bank's account with the depositor. 



DEPOSITORS LEDGERS. 



The postings to the depositors' accounts are sometimes made di- 
rect from the deposit slips on the one side, and from the checks on 



io8 



PRACTICAL BANKING. 



Form of Depositors' Ledger. 

Brown &* Bacon. 



Jan. 2., 



Dep.. 
Col.. 



500 
842 25 



John Adams. 



Jan. 2 C'ks 



423 10 Jan. 2 Col 



500 



Henry Smith. 



Jan. 2. 



C'ks. 



3 12 50 



Jan. 2.... 



Dep. 



250 



C. C. Brown. 



Jan. 2.... Dep 



1250 



THE BOOKKEEPER. 



I09 



the other. The checks and slips, when thus posted, are first en- 
tered in a journal or register for the purpose of proving the cash 
and accounting with the tellers. This journal or register forms a 
part of the general books of the bank. The ledgers containing the 
depositors' accounts are auxiliary to the general books. We mean 
by this that a statement of the bank's condition is made up inde- 
pendently of the depositors' ledgers. One account in the general 
ledger serves to show the liability of the bank to its depositors. 
In some banks the postings to the depositors' accounts are made 
from other books, usually called "journals." In some systems two 
journals are used, and in others only one. We give, in this connec- 
tion, some illustrations of these journals. Though still used to 
some extent, the forms shown under the title of "debit journal" 
and "credit journal'' have been mostly superseded by more modern 
devices. The form under the title of " deposit journal " is used by 
many country banks. It is simple, and well serves the purpose for 
which it is intended. 

Depositors' Ledger with BALA^XE Column. — Form 2. 

Richard W hittin^ton . 



Jan. 2. .. 
2. . . 
3-.- 



4.. 



Deposit 

100, 46 75, 10 50, 305 10 462 35 

Dep 

1240 80, 175 20, 960 50 

2100, 137 10 4.613 60 

542050, 132405 

208 40 6.952 95 



400 



9-537 65 

5-324 05 
* 1.628 go 



The first column contains the debits or checks, the second column the credits or 
deposits, and the third column the balances. The balances are carried out every 
day after the deposits and checks have been entered up. 

In the large city banks where the depositors are so numerous as 
to require a classification of the accounts, several books are kept 
for summarizing the checks and deposits. The depositors' accounts 
are grouped thus : Names commencing with A to D, E to K, L to 
R, and S to Z. The checks and deposit slips are assorted so as to 
be entered up under the several classes or groups in separate 

* This balance is printed here in italics to represent an overdraft. In practice it would 
be written in red ink. 



no 



PRACTICAL BANKING. 



journals or registers. The work of writing up must be commenced 
in ample time for entering the last check paid and the last check 
deposited almost immediately after the tellers close their windows. 



Depositors' Ledger with Double Balance Columns. 

Richard Whittington. 



•Form 3. 



1628 90 



46235 
4.613 60 
6.952 95 



305 10, 10 50, 46 75, 100 

2100, 137 10, 960 50, 175 20, 1240 80. 
208 40, 1324 05, 5420 50 



1/2 
3 
4 



co. 000 
400 



9-537 65 
5-32405 



This represents a Depositors' Ledger with two debit and two credit columns ; one 
column for itemized checks and one column for dates. The first column on the 
left shows the debits' balance or overdraft ; the second column the totals of checks ; 
the third, itemized checks and other explanatory remarks ; the fourth, the dates ; 
fifth, credits or deposits ; and sixth, credit balances. 

In the work of writing up there is precaution taken to leave suffi- 
cient space after the name has been once entered to add subsequent 
checks. This does not apply so much to deposits, as cases of more 
than one deposit to a name in a day are exceptional. 

Form 4, or what is commonly known as the Boston method, 
possesses some advantages which have influenced its adoption in 
many places. It is intended to serve as a day-book and ledger com- 
bined. The asset balances are entered in red, and the liability bal- 
ances in black ink. In our illustration we give a page, or portion 
of a page, showing the closing entries for two days. It will be 
seen that the depositors' accounts run horizontally across the page 
(two accounts occupying a compartment). First comes the balance 
brought forward from the page where the name previously appeared. 
Then there are two narrow columns under the heading " Checks in 
detail." The first of these columns belongs to the second account 
in the compartment, and the second column to first account in the 
compartment. The next two columns are for the totals of checks 
and deposits. The sixth column is a space for explanations upon 
the deposits or other credits. The seventh column contains the 



DEPOSITORS DAILY BALANCE BOOK. 



Ill 




112 PRACTICAL BANKING. 

balance at the close of the day. Following this, still to the right, 
the same is repeated under another day. A page nineteen inches 
in width will give space for three days' transaction:. Running 
across both pages of the book, six days' business is recorded be- 
fore the name is re-written. The object of dividing the page into 
compartments with horizontal lines, and placing only two accounts 
in one compartment, is to aid the eye in its sighting across the 
page from the side where the name is written. 

In footing the balance columns the overdrafts are deducted, mak- 
ing the footing show, not the total liability of the bank for de- 
posits, but the "net total deposits." This is one of the objections 
to be urged against the system. The overdrafts of depositors are as- 
sets. They may be serviceable in paying depositors, and they may 
not ; they are certainly not as reliable as money in the vault. And, 
besides, a statement of a bank for the benefit of stockholders ought 
to show the total deposits and the aggregate of overdrafts as two 
separate items. 

After footing the balance and total columns of the depositors' 
accounts for the day, a general statement may be written up by 
adding capital stock and other general accounts, if not too numer- 
ous. The column entitled " Total checks " may, in entering the im- 
personal or general accounts, be used for all cash disbursed. The 
" Total deposits " column may contain all cash receipts ; in this way 
the balance book will serve to take the place of a general ledger. 

One advantage of this method which recommends it is the easier 
locating of errors. Each page is susceptible of proof in itself, and 
thus an error may easily be pinned down to a small number of en- 
tries. 

depositors' balance ledger. 

Thj illustration presented under the title "Depositors' Balance 
Ledger" represents a portion of a page of a book extensively used 
by the large banking institutions of New York, and in some other 
cities. Practically speaking, it is a skeleton ledger, kept for the con- 
venience of the paying teller. During banking hours it is never far 
from Lh counter, and the standing of any depositor's account can be 
ascertained in a few seconds at any time. This book has no connec- 
tion with the depositors' ledger kept by the individual bookkeeper. 

In the Boston method the daily balance book is the only ledger 
used for keeping the depositors' accounts. Thus, it will be seen that 
the two books have a widely different purpose. In many banks 
where the balance ledger is used the regular accounts of the de- 
positors are kept by the individual bookkeeper, or bookkeepers (for 
there may be several of them), in ledgers of the usual form. 

A complete explanation of the skeleton ledger is difficult in a small 
treatise which will not permit the introduction of ruled forms 
showing different colored inks. A page about eighteen inches square 



THE BOOKKEEPER. 



113 



will give space for thirty accounts six days. The two pages of 
such a book will serve thirty accounts thirteen days. Two writings 
of an account will thus carry it through a month. The lines upon 
which the names are written are about five-eighths of an inch 
apart, and they alternate in color, first blue and then red. The 
change of color serves to guide the eye correctly across the page, 
or the two pages. For each day there is a pair of columns, the 

Depositor's Balance Ledger. — Form 5. 



Names. 


Aug. 1. 


Aug. 2. 


Aug. 3. 


Aug. 


N. Y. Tribune Ass'n. 


210 40 

318 60 

27 50 


18400 10 
1415 60 

4200 


1540 
835 15 


iQ2^g 20 
1410 

2405 


355 50 


18194 °5 
1840 






1840 




R. Wells 


1210 










460 

375 


250 
1840 50 


270 50 

650 


IOIO 

375 


35o 
70 10 


1385 




P. White 


5 8 o 50 

250 




































580 50 


22600 JO 




22674 20 


355 50 


19579 oj 





first, or left-hand column, being for debits or checks, and the sec- 
ond, or right-hand column, for credits or deposits ; the balances are 
carried forward in pencil. The calculation in carrying the balances 
forward is done mentally. It would be surprising to one not ex- 
pert in this work to observe the rapidity with which the book- 
keeper performs these mental calculations. With three amounts on 
one side and two on the other, the items ranging in value from the 
units column to several thousand, the calculation is performed men- 
tally, the balance struck without a moment's hesitation, and placed 
in its proper column for the next day. For example, the following 
represents a day's transactions : 



Debit. 


Credit. 


7,462 25 
35 60 


12,620 39 


379 84 


284 60 



114 PRACTICAL BANKING. 

The balance, 5,027.30, is dotted down with surprising rapidity. In 
footing the columns the pencil figures only are taken to get the 
total balances. The amounts in ink, when footed, show total drafts 
and total deposits for the day. 

The plan followed by which the entries find their way from the 
tellers' counters and the exchanges, to the depositors' ledger and 
balance book, varies in different banks. The volume of business 
has much to do with the system in use. It is well worth the 
space here to give a description of the plan in vogue in the Na- 
tional Park Bank. This bank is a representative institution with 
over ten thousand active accounts on its depositors' ledgers. There 
are two receiving tellers. A depositor presents his book with de- 
posit enclosed. If currency or specie form a part, it is counted 
and dropped into the till or money drawer. The checks and other 
items are not carefully examined. If the currency and coin are 
correct, the amount according to the deposit slip is entered in the 
pass-book. The deposit slip, the checks, drafts, or other items are 
kept together until a checking clerk takes them away. These items 
of the deposit slip are then carefully examined and re-checked upon 
the deposit slip. If an error is discovered the correction is made 
upon the slip. The checks, drafts, etc., are now classified and 
passed over to other clerks. Some go to clerks who enter them 
up ready for passing through the Clearing-house. Others must be 
sent out for collection by the bank's messenger. The checks of the 
bank's own depositors and correspondents go to clerks who enter 
them up preparatory for the bookkeepers. This is followed up so 
closely that, at the hour for closing the receiving teller's window, 
every check, draft and other item of the day has been charged up 
at the checking counter. The items in the balance ledgers are 
taken from the books kept up by the checking clerks, and the in- 
dividual bookkeepers also make up their ledgers from the books 
kept on the checking counter. 

There are four sources from which the balance ledger book- 
keepers obtain the items of debits to the accounts in their charge. 
These are— first, through the Clearing-house; second, through the 
paying teller's department; third, from the receiving teller's depart- 
ment ; and, fourth, through the note teller's department. They 
have been classified and entered up at the checking counter, so that 
he has only to write down the totals. There are some institutions 
having accounts with the Park Bank which draw as many as forty 
checks in a day ; many draw twenty to thirty. This will explain 
why a method like that described in connection with the Boston 
daily balance book would not be practicable in all places. 

In this bank the accounts of depositors or dealers are divided 
into four classes, and are kept by eight individual bookkeepers — 



THE BOOKKEEPER. 115 

four of whom are on depositors' ledgers and four on the balance 
ledgers, thus: 

Names from A to D, 

E to K, 

L to R, 

S to Z. 

The accounts of correspondents or other banks are arranged under 
two divisions: A to L, 

M to Z. 

Thus twelve individual bookkeepers are employed, eight on de- 
positors' accounts, and four on accounts of other banks. The bal- 
ance books are extended before the hour for opening next morn- 
ing, and the footings made so as to compare with the general 
ledger before the close of the next day. 

THE PRINCIPAL BOOKS. 

The number and character of the books of a bank which make 
up the general set varies according to the volume of business trans- 
acted. The routine practiced is also dependent upon the extent of 
the transactions. For the purpose of illustration, we shall give in 
these pages a description of the books and routine best adapted to 
the needs of a bank of a moderate type. 

Commencing with the organization of the Lunar National Bank, 
we will follow the transactions of a period sufficient to embrace a 
history of the general routine. The preliminaries for organizing a 
banking corporation have been fully described under Chapter V. 
We will presume, therefore, that all the preliminary arrangements 
have been perfected. The bank is organized with a capital of 
$250,000. This amount is paid in by the shareholders. For the 
original entries of what has transpired, we look to the minutes 
of the shareholders' meetings and the book of stock subscrip- 
tions. 

The opening entry in the books of account is made in the 
general journal, a book with the ordinary journal rulings. The 
account representing the certificates of stock is debited, and the 
account of capital stock credited for the amount of the bank's 
capital. Before any of the certificates have been issued to sub- 
scribers, they (the certificates) form the only resources of the cor- 
poration. They are the assets against the liability of the corpora- 
tion for the amount of its capital stock. As the stock is sub- 
scribed for, the certificates go out, and the corporation holds the 
stockholders individually and collectively for the amounts thus is- 
sued. This operation is recorded by charging in the books to 
the account of "Stockholders" the amount subscribed for, and 
crediting the account of stock certificates. When the shareholders 



Il6 PRACTICAL BANKING. 

pay in their subscriptions, the general account of " Cash " is debited, 
and the account of stockholders credited with the payment. Thus 
far the records of these transactions are the same in all joint-stock 
companies. 

In the General Ledger the account of "Stockholders" represents 
these several accounts collectively. A book called a "Stock Ledger" 
is kept for the purpose of keeping the accounts of these persons 
separately. The Stock Ledger is an auxiliary to the general set. 

The capital having been fully paid in, a purchase is made of 
$220,000 in United States bonds, on which a premium is paid of 
$30,000. The bonds are deposited with the Treasurer of the United 
States at Washington, and in return the bank receives its National 
bank notes to the amount of $ 198,000, less $9,900, the five-per- 
cent, fund for the redemption of circulation by the United States 
Treasurer. 

The premium on bonds, ten-per-cent. fund to secure circulation, 
and five-per-cent. fund to secure redemption, together may be 
treated under one general title, they forming a reserve growing out 
of the bank's circulation. The title we have chosen is "Circulation 
Reserve." This is not arbitrary. The account represents an asset 
which, in the example used here, is $61,900. The premium paid 
in on the bonds forms nearly one-half of this reserve. But so 
long as the present rate of interest holds, this resource is as sub- 
stantial as so much money locked up where it cannot be used 
until the bank withdraws its circulation. The three items which, 
combined, make the reserve fund, or circulating reserve, could, if 
it were desired, be treated each under an independent title. It 
would, however, only encumber the books and serve no practical 
purpose in the end. 

The first three entries in the journal could, in a case of the kind 
used as an illustration, be condensed under one journal entry. 
But, suppose, instead of all the stock being subscribed for at once, 
only a part had been taken. Then, too, presuming that the amount 
subscribed for had been only paid in part. It will be seen that 
each of the entries given would have been necessary for recording 
the operations, step by step as they transpired. 

For all that has been done up to this time, it was not necessary 
that the company should have a place of business of its own. It 
may have had one, however, and got fairly under way before its 
circulating notes had been sent on from the Treasury Department. 
But, presuming that our records represent the transactions in the 
order of their occurrence, we now find the new corporation ready 
to rent or buy a place to conduct its business, open its doors and 
receive deposits. Let us proceed to examine the history of what 
takes place, and record the various operations in the books of ac- 
count. 



THE BOOKKEEPER. 



117 



ITEMS FOR ILLUSTRATING THE DEBIT AND CREDIT JOURNALS, 
(i.) Rec'd notice from First National of Cleveland that Brown & Bacon's 
d'ft on Hardin had been paid, and the amount, $842.25, placed to our 
credit. Brown & Bacon deposited, cash, $500. (See Credit Journal, deposits 
column, $1,342.25; also Depositors' Ledger, acc't of B. & B. For charge 
to First Nat., Cleveland, see Debit Journal.) 

(2.) Bo't 100 U. S. 4s@i23 ($12,300), paying by draft on Fourth Nat., 
New York. (See Credit J., general col. for credit to Fourth Nat., and also 
Debit J., general col. for credit to Government stocks. 

(3.) Rec'd notice from Second Nat., St. Louis, that John Adams's d'ft on 
Beeten for $500 had been paid and placed to our credit. (See C. J., de- 
posit col., and D. J., general col. ; also Depositors' Ledger.) 

(4.) Paid bill, stationery and printing, $47.50. (See D. J., general col.) 
Note. — This is entered to the account of " Expense." In some banks the 
general expenses are divided under various headings, such as "Salaries," 
" Stationery and Postage," "Rent," "Fuel and Gas," etc. The "Expense 
Account " in such instances would embody only items of contingencies not 
provided for by special classification. Classifying the items is a matter of 
taste. As a rule, it is well to adopt such a practice. 

Form of Credit Journal. 

Washington, January 2, 1885. 



L.F. 



Title of Account. Items and Notation. Col. &> Ex. Deposits. General, 



Brown & Bacon 

Fourth National, N.Y 

John Adams 

Henry Smith 

C. C, Brown 

National Park, N. Y.. 



P. Fisher 

Amos Smith 

F.Hill 

Interest 

Col. & Exchange. 

Deposits 

Cash, Dr 



500 Col. 842.25 . . . 
U. S. 4^'s @ 123... 
Col 



C. Goodnough. 

J. Peters 

F. Brokaw 

R. Albert 



Disct. 



Disct. Register.... 



4 

3 14 
80 



6 25 



24 19 



i,342 25 

500 

250 

1,250 



3,979 
2,953 50 

2,467 50 



12,742 25 



12,300 



4,000 

1,600 

1,256 

320 



93 75 
24 19 



12,742 25 
32,336 19 



u8 



PRACTICAL BANKING. 



Form of Debit Journal. 

Washington, January 2, 1885. 



L.F. 



Title of account. Items and Notations. Col. & Ex. Deposits. General 



First Nat., Cleveland.. 

Governments 

Second Nat., St. Louis. 

Expense 

Fourth National, N.Y. 

Second Nat., Phila 

F. Brokaw 

T. Swift 

L. Loveland 

H. Smith 

John Adams 

Bills Discounted 

Dom. Exchange 



Deposits, Di 
Cash, Cr.... 



B. & B. Col 

4's pr. dft. 4th Nat. 

J. Adams, Col 

Stationery, Print 1 g. 



Remittance 

C.C. Brown's, K., 
Goodnow, 4,010. 
Peters, 1,000. 
I i 2 59 x 4 



120, 145 50, 200 

18 10, 14 60, 105 30. 

300, 12 50 

105, 318 10 

D. R 

D. R 



Checks paid. . . 
Disbursements. 



1,259 14 
46550 
128 

31250 
423 10 



2,588 24 



842 25 
12,300 
500 
47 5o 

1,000 
5,010 



4,000 
5,5oo 

2,588 24 



31,787 99 



Discount. 



When 
Discounted. 


No. 


Drawer or End. 


Drawee or Mkr. 


Where Pay. 


Date. 


Time. 


Jan. 2 

2 

2 


1 
2 
3 


P. Fisher 

Amos Smith 

C. Stevens 


J. C. Vermont.. 

T. Wilder 

Brown & Bacon. 


Washingt'n. 

N.Y 

Chicago .... 


Jan. 2 
Jan. 2 
Jan. 2 


60 
90 
60 

















THE BOOKKEEPER. 



119 



(5.) Sold drafts on Nat. Park, New York, as follows: C. Goodnow, $4,000, 
exch. $10; J. Peters, $1,600, exch. $ 4 ; F. Brokaw, $1,256, exch. $3.14; 
R. Albert, $320, exch. 80c. (See C. J.) Rec'd in payment, Goodnow's c'k 
on Second Wash'n, $4,010; Peters' c'k on do., $1,000, balance cash; F. 
Brokaw's c'k on us, $1,259.14. (See D. J. and Depositors' Ledger, d'ft to 
Albert paid in cash.) 

(6.) Discounted notes for P. Fisher, $4,000; Amos Smith, $3,000; F. 
Hill, $2,500. Total, $9,500. (See D. J., general col. from Discount Regis- 
ter ; also C. J. deposits, and col. and exch. from Discount Register.) 

Note. — The original entries of these transactions would be those in the 
Discount Register. The transactions then find their way to the Ledger 
through the Debit and Credit Journals. . 

(7.) Paid checks of Swift, Loveland, Smith and Adams. (See Debit Journal, 
deposits col.) 

THE DISCOUNT REGISTER. 

The purposes served by the Discount Register are what, in a 
mercantile business, would be found in the use of a Bill-book. 
The formular arrangement of the Register is somewhat more ex- 
tensive than that of the Bill-book, as the information desired by 
a bank covers a broader field than that sought by a commercial 
house. In this book are recorded, in the order of discount, the 
notes which become the property of the bank. The names of the 
drawer or endorser appear first, and then come those of drawee or 
maker. Following these are columns for information as to where the 
note is payable, the time specified on its face, date when due, and 
time it is to run for which discount is charged. The amount of 

Register. 



WnDue. 


To Run. 


Bills Dis. 


Dom.Ex. 


Int. 


Col.& Ex. 


Proceeds. 


Credited To 


Ck. 


March 6. . 
April 5 . 
March 6. . 


63 
93 
63 


4,000 


3,000 

2,500 


21 

4650 

2625 


6 25 


3,979 
2,953 5o 
2,467 50 


P. Fisher.... 
Amos Smith. 
F. Hill 


V 
V 
V 




4,000 


5,Soo 


93 75 


6 25 


9,400 00 























120 PRACTICAL BANKING. 

the note is sometimes classified under two headings, as seen in the 
illustration, viz., " Bills discounted " and " Domestic exchange," and 
sometimes it is entered under one heading, as " Amount " or 
" Face." When the two columns are used, the first embraces the 
notes payable at home, or in the place where the bank is located, 
and the latter those payable at other places. A column is pro- 
vided for " Interest," another for " Collection and Exchange," and 
one also for " Proceeds." Finally the name appears to whom the 
proceeds are credited, and a narrow column is added for the 
"check" which is made as the items are posted. 

There are many forms of this book in use, some less and some 
more elaborate than the one we have given. Some banks treat all 
notes discounted under the one general title of " Bills Receivable," 
and use as a record only the simplest form of a bill-book. In 
many banks a large number of books are used which the experi- 
ence and skill of progressive accountants have demonstrated are 
not really essential. There is a growing tendency among bank ac- 
countants to dispense with every book not absolutely necessary, and 
to abridge the bookkeeping in every way possible. This is a com- 
mendable spirit of reform, but care should be taken that the 
abridgement is not carried to excess, lest grave inaccuracies creep 
in through the lack of proper checks and proofs. 

THE OFFERING-BOOK. 

Chapter VIII. is devoted chiefly to the subject of discounting 
paper. The information there given is so explicit that nothing re- 
mains to be said here more than to explain some special functions 
of the Offering-book, and give an idea of its place in a system of 
bank accounts. On page 62, in the chapter referred to, reference 
is made to the formula arrangement of the Offering-book. There 
is no prescribed rule for the form to be employed. Any arrange- 
ment that will best meet the requirements may be adopted. But 
little difference in the style is to be noticed among the many in 
use. We submit a form that seems to fill the requirements. The 
form may be improved upon for some institutions. Some Offering- 
books have a column headed " Average Balances." This is to give 
the information contained in the Average-book, for a description of 
which see page 59. Where an Average-book is kept, the addition of 
the average balance column is not essential, and if it tends to make 
the book cumbersome, should be omitted. The Offering-book is com- 
monly termed a memorandum or auxiliary to the regular set. It> 
however, acts as the book of original entry for the class of trans- 
actions which originate therein. From the Offering-book the rec- 
ord is carried to the Discount Register, through which it enters 
the ledgers. A record of the discounted paper must also be carried 
to the Domestic Ticklers, if payable at home, or to the Domestic- 
exchange Book, if sent away for collection. 



THE BOOKKEEPER. 



121 



Many banks have dispensed with the Offering-Book. The infor- 
mation given in Chapter VIII. explains why the book may in many 
cases be unnecessary. 

Offering-Book. 



^ 


Date. 


I 


July 18 


2 


i7 


3 


18 


4 


16 


5 


17 


6 


18 
1 


7 


^ 


S 


18 



Offered by 



Guarantee. 



Payable at {Amount J° A . c ~ . f? e ~\ Re \ 
J Run. ccpted chned\marks 



Joseph Arnold. H. Coulter j Our bank 

W. T. Bartlett U. P. Bds $3,200. Arctic, N.Y. . . 

H. Coulter . . . . ! O. B. Arnold.. . . | Our bank 

do 



D. Robb 'J Hurd 

J. H. Watt. . . . G. A. Lewis.. . . I Chemical, N.Y. 



C. T. Wood. . . J. Green | Our bank. 

P. Young T. W. Bush j do. 

F. Zahn ' R. Ladd do. 



1,000 
2,500 
3.5oo 

75° 
2.7S0 
1,800 

500 
3.400 



60 ds. 



I 60 ds. 
I 90 ds. 

60 ds. 

30 ds. 

60 ds. 

30 ds. 

60 ds. 



i,oco 
2,500 
3.500 

2,780 



3.4oo 



,800 
500 



M. Lutz, 585.30 ; Theo. Kitchen, 
Graham, 482.60 ; W. H. Webb, 



HISTORY OF TRANSACTIONS. 

July 1. — Concluded purchase of property known as Treasury Hall, for 
bank building, paying for same $27,500. Recording deed, $2.50. 

12th. — Bill of carpenter for fitting up bank building, $562, paid. 

13th. — Bought furniture and fixtures, for which bill amounted to $375. 

15th. — Paid for books and other stationery, including express charges, $155. 

16th. — Bought postage stamps, $12. Bill for printing, paid, $75.10. 

Correspondence with Arctic Nat. Bank established by depositing in current 
funds $50,000. Paid expenses of President, trip to New York, $55. 

1 8th. — Received following deposits : H. 
1,624.90 ; G. A. Lewis, 1,210.40 ; E. P. 
1,540.82. 

Among deposits were following checks and bills : 
First Nat., 513.80, 75.50, 12.40. 1,210.40. 
East River, N. Y., 1,105.82. 
Hanover, N. Y., 269.95. 

Stebbins, F., & Co., Lawrence, Dak., 71.50. 
Exchange, Pike, 111., 25.30. 

Discounted paper as follows : 
For Joseph Arnold, H. Coulter's note, 60 days, 1,000.00. 
For W. T. Bartlett, his note, 60 ds., for 2,500.00 ; secured by U. S. bonds. 
For H. Coulter, O. B. Arnold's note, 90 ds. , 3,500.00. 
For J. II. Watt, G. A. Lewis's note, 30 ds., 2,780.00. 
For F. Zahn, R. Ladd's note, 60 ds., 3,400.00. 

Bought following bills on New York, and sent same for credit to Arctic 
Nat. Bank : 

Theo. Kitchen's dft. on Imp. and Tdrs.', endorsed by W. T. Bartlett, 
7,000.00 ; premium, 7.00. II . C. Rider's dft. on C. S. Hough, payable at 
Nat. Park, 4,000.00; premium, 3.50. 



122 



PRACTICAL BANKING. 



Sold exchange on Arctic Nat. as follows : 
H. M. Lutz, 2,500.00; prem., 3.25. 

F. Zahn, i.Soo.oo ; prem., 2.50. 

W. H. Webb, 250.00 ; prem. 50 cts. 

Paid the following checks : 
W. H. Webb, 250.50, 13.25. 
Theo. Kitchen, 270.50, 18.42, 5.10. 

19th. — Received the following deposits : 

G. A. Lewis, 516.80; W. H. Webb, 275.10; G. A. Linton, 1,255.00; H. 
M. Lutz, 346.10; John Rapson, 1,842.70; J. D. Brown, 540.15; J. W. 
Torrey, 1-S.40. 

Among the deposits were the following checks : 
First Nat., Hartford, Conn., 175. So. 
Chemical, New York, 255.10. 
Fourth Nat., New York, 156.50. 
Merch. Nat., New York, 127.40. 
All of which were remitted Arctic Nat. for credit. 

Paid checks as follows : 
W. H. Webb, 75.80, 37.50, 42.60. 
G. A. Lewis, 13.15, 27.50, 105.85, 10.10. 
Theo. Kitchen, 8.75, 75.80, 327-40. 8.25. 
H. M. Lutz, 107.10, 46.60, 3,27. 
G. A. Linton, 36.40, 27.85. 
J. D. Brown, 8.40, 10.75, 41.85. 

Received for collection the following bills : 
No. 1 — John Rapson, on Brown Bros., Chicago, 246.80 ; No. 2 — J. W. 
Torrey, on Smith & Wood New York, 47.25 ; No. 3 — W. H. Webb, on 
Drexel, Morgan & Co., 1,247.50; No. 4 — E. P. Graham, on Prince & 
Whitely, 385.10 ; No. 5 — J. D. Brown, on John H. Davis & Co., 470.50. 

General Journal. 

Lunar City, July, 18 



Stock Certificates 

To Capital Stock 

Stockholders 

To Stock Certificates 

Cash 

To Stockholders 

United States Bonds 

Circulation Reserve, (Premium). ...".. 

To Cash 

Bank Circulation 

Circulation Reserve, (Ten p. c. fund) . 

To United States Bonds 

Tellers' Circulation 

Circulation Reserve, (Five p. c. fund) 

To Bank Circulation 



250,000 

250,000 

250,000 

220,000 
30,000 

198,000 
22,000 

188,100 
9,900 



250,000 
250,000 
250,000 

250,000 



198,000 



THE BOOKKEEPER. 



123 



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124 



practical banking. 
Receiving Teller's Check-Book. 



Depositor. 


Cash. 


Dom. Ex. 


For. Ex. 


Total. 


July 18. 


413 00 
841 00 

200 00 
435 00 


75 30 

5i3 80 

1,210 40 

13 40 


96 80 

269 95 

270 10 
1,105 82 


585 10 
1,624 75 
1,210 40 

482 50 
1,540 82 








Webb 






1,889 00 










300 00 

20 00 

1,200 00 

300 00 
1,500 00 

240 00 

150 00 


j,8 i i go 










41 00 

55 00 

300 00 

5 05 

28 40 


1,742 67 










175 80 

255 10 

46 10 

42 70 

295 10 


5,443 57 
516 80 


July 19. 


Webb 


275 10 
1,255 00 

346 10 
1,842 70 

540 15 






Rapson 


Brown, J. D 


Torrey 


178 40 






By Paying Teller 


j, 7/0 00 








a Dom. Collections 




429 45 










a For. Collections 




814 80 . 












a Dep. Ledger 




4,954 25 















Collection 



Date Left. 


No. 


Drawer or Endorser . 


Drawee or Maker. 


Where Payable. 


Date. 


July 19 

19 
19 
19 


1 
2 
3 
4 
5 


John Rapson 

A. Cranberry 


Brown Bros 

Smith & Wood... 
Drexel, M. & Co. . 

Prince &W 

J. H. Davis & Co. 


Chicago 

N.Y 


Jul. 1 
10 


W. H.Webb 




15 
*9 
19 


A. Apple 




J. D. Brown 







THE BOOKKEEPER. 



I2 5 



Domestic Tickler. 
A ugust. 



Date. ! Xo. 


Payer. 


Amount. 


Collected for. 


Remarks, 


July 18. . . . 


4 


G. A. Lewis 


2,780 00 


Dis. 





July 18. . . . 
18... J 



September. 

" n 

H. Coulter 1,000 00 

W. T. Bartlett 2,500 00 

R. Ladd 3,400 00 



Dis. 
Dis. 
Dis. 



October. 



July 18.... 3 i O. B. Arnolds 3,50000 



Dis. 



Register. 



Time. 


Due. 


Amount. 


Collected/or. 


Sent to. 


Ck. 


30 ds. 


Aug. 2 
Sep. 11 
Aug. 17 
Aug. 21 
Aug. 21 


246 80 

47 25 

1,247 50 

335 10 

47° 50 


John Rapson 

J. W. Torrey 

W. II. Webb 

E. P. Graham 

J. D. Brown 


First Nat 


V 


60 ds. 


Arctic 


V 


30 ds. 


Arctic 


tf 


30 ds. 


Arctic 


v 


30 ds. 


Arctic 


V 







126 



PRACTICAL BANKING. 



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THE BOOKKEEPER. 



127 



THE DEPOSIT JOURNAL. 

The Deposit Journal is not as universally used as the General 
Ledger, the Tickler or Discount Register. It is used in many country 
banks, and helps to simplify and abridge the entries in the General 
Journal. One side of the book shows the work of the paying 
teller, and the other that of the receiving teller, coupled with the 
records of certificates of deposit issued. Certificates of deposit are 
sometimes issued by one official and sometimes by another. In some 
country banks the cashier is also paying-teller and receiving teller, 
/. e., he performs the duties of both, and may be also the book- 
keeper, note teller and discount clerk. We do not refer to the func- 
tions of the various departments of service with the idea that the 
various duties must be performed by one and the same person. If 
the one person acts as both paying and receiving tellers the De- 
posit Journal becomes a mere cash-book for recording a special line 
of transactions. 

The Deposit-Journal. 

Debits, Monday, Jan. 3, 1883. Credits, Monday, Jan. 3, 1883. 



Names. 



Checks. 



C. H. Pine 

Jos. Arnold , 

F. N. Benham 

H. B. Drew, 1510. 
T. L. Bartholomew 



' Wm. E. Seeley 
I. B. Prindle 



E. E. Post. 



Total C'ks Pd. 
Total Ctf's Pd. 



Paying Teller's 



210 40 
1,406 10 

75 5o 

405 



57 10 
146 60 



Ctf's Dep. 



500 



i75 



2,300 70 2,300 70 
675 



Credits. 



2,975 70 



A T ames 



Ctfs Dep. 




Alex. Haw ley 
W. B. Hincks 
F. W. Marsh 
C. H. Pine 
J. P. Wood 

Total Deposits.'... 1, 
Total Ctf's issued. 



Receiving Teller Chg'd.., 



1,510 90 
1,000 



2,510 90 



Besides the books described, there may also be named several rec- 
ords or registers, such as the Certificate of Deposit Register and 
Draft Register. These are simple forms, and require no special ex- 
planation upon their formular arrangement nor instruction upon 
their use. The former is a mere record of the certificates of de- 
posit : when issued, to whom, the amount, and when paid. The lat- 
ter furnishes information as to the drafts or bills drawn on corre- 
sponding banks, date, in whose favor, on whom drawn, and amount. 

Note. — For explanation of "Depositors' Balance Ledger," see pages 112, 113. 
Figures in italics represent balances, which are carried forward in -Dencil. 



128 PRACTICAL BANKING. 



CHAPTER XV. 
THE RUNNER AND PORTER. 

He is a young man, and occupies the lowest position in the bank. 
He is simply a messenger to collect drafts and notes. Boys are 
hired who are eighteen to twenty years old, are paid a small salary, 
and are quickly trained to go around the city with notes and 
drafts for collection. Their instructions are simple and definite, 
They must not take anything beside a certified check or good 
money, unless instructed by the Note Teller to do otherwise. He 
has charge of the runners, who are promoted whenever vacancies 
occur. Many bank clerks and not a few cashiers and presidents 
began as runners. 

In London a bank messenger or runner is called an out teller, or 
collecting clerk. His duties are quite the same, though his methods 
differ in some respects. When he starts out from the bank, on 
what is there termed his " walk," he leaves behind him a record 
of the route he is to travel, and of the collecting, notifying, and 
presenting he is to do, in a book called the Walk Book. In 
this way the bank is kept informed of the whereabouts of their 
absent messenger, a bit of information that must be highly appre- 
ciated. In our banks and offices the inquiry, " Where is that 
messenger ? " has become as familiar as the question, " Where 
are the police ? " The London collecting clerk, or out teller, in- 
variably has his wallet strapped to his body with chain and belt, 
a practice which has in some cases been copied here, and ought 
to be here more widely in vogue. The drafts which he takes upon 
his route for presentation, for acceptance, are always left with the 
drawees, who have twenty-four hours in which to return them to 
the bank. 

The porter is the janitor. His duty in some banks is to appear 
when the watchman leaves at six o'clock in the morning. He puts 
the bank in order, and stays until the clerks come, then takes all 
the books out of the vault and puts them in their proper places. 
It is now probably about half-past nine. At night, after the clerks 
go away, he puts the books back, locks the vault and stays in the 
bank until the watchman appears at eight o'clock. After the clerks 
are gone, the janitor, porter or watchman is always present. In 



THE RUNNER AND PORTER. I2Q 

some banks the porter is a special messenger during the day. 
After doing his work in the morning he retires, and, having arranged 
his dress, appears again, and is thus engaged during the day. 
When thus employed, if a bank has any coin to transport, he gener- 
ally attends to it. 



I30 PRACTICAL BANKING. 



CHAPTER XVI. 
DEALINGS IN EXCHANGE. 

A bill of exchange is a familiar instrument, for it is one of the 
oldest used in commerce. It may be denned as an order by a person 
on another living in a different place, directing him to pay a sum 
of money to a third person. Worcester's definition of exchange 
is : " the method of adjusting accounts or paying debts, when the 
debtor and creditor are distant from each other, by means of an 
order or draft called a bill of exchange, so as to avoid the trans- 
mission of either money or goods." The person who writes the bill 
is called the drawer, the person to whom it is addressed is called the 
drawee, and the person who is to receive the money is called the 
payee. When the drawee has accepted the bill he is called the 
acceptor. This is done by writing his name and the word "ac- 
cepted " across the face of the bill, and also the date if the 
bill is payable after sight. In accepting a bill, the acceptor cannot 
vary the terms of it ; for example, if it be drawn on a person living 
in New York, and payable there, he cannot accept it payable in 
Boston. He must follow the direction in the bill. 

The phrase " bill of exchange " is often abbreviated and called simply 
exchange. In newspaper quotations the one word is generally used. 
Thus " exchange on New Orleans," or "exchange on London," is quoted 
at a certain figure. The term is somewhat ambiguous, however, 
sometimes meaning the rate of exchange and sometimes the instru- 
ment. But the term is employed in such relations to other words 
that persons have no difficulty in understanding what is meant. 

What is the use of these instruments, and what purpose do they 
serve ? Suppose that Jones, who lives in New York, owes Williams, 
of St. Louis, $ 10,000. Exchange on New York being almost always 
at a premium, Jones will either send his certified check on his 
New York bank for the amount he owes in St. Louis, or he will 
deposit the money in his New York bank, and take the bank's 
certificate of deposit for the amount, payable to the order of his 
debtor, Williams, in St. Louis. Williams will have no difficulty in 
negotiating this certified check, or the certificate of the New York 
bank, because, as already stated, New York exchange is almost 
everywhere acceptable. But if, on the other hand, Williams, of St. 



DEALINGS IN EXCHANGE. 13I 

Louis, desires to pay $10,000 to Jones, of New York, he will either 
draw a draft on some party in New York who is indebted to him, 
and send the draft to Jones, or he will go to his bank in St. 
Louis and buy, at the current rate, exchange on New York, z. <?., 
the bank's draft on its New York correspondent, payable to the 
order of Jones. If bills of exchange did not exist, Williams would 
be obliged to ship the money from St. Louis to New York. This 
would cost expressage, besides the danger of loss by robbery or 
other accident, and the loss of interest during the period of trans- 
mission. 

Many bills are drawn payable at sight, and in certain States 
these must be paid when presented. In other States, however, the 
drawees are entitled on sight drafts to three days' grace. To ren- 
der bills payable at once when presented the words " at sight " 
are omitted, and the drafts are then payable on demand. 

The business of buying and selling exchange is a very large one, 
especially that of foreign exchange. The buying of exchange comes 
about in this way. Suppose Williams, of St. Louis, having sold a 
bill of goods to Jones, of New York, has drawn a bill of exchange 
on Jones for the amount payable to his (Williams') own order. 
Williams wants the money at once, perhaps to pay for purchases. 
He goes to a bank and asks the cashier if he will buy the bill. 
The cashier looks at it ; he knows that the drawee is perfectly good, 
and that in the event of his failure to pay he can hold the drawer 
responsible. He buys the bill and pays Williams the money there- 
for. Transactions of this kind are occurring daily among the banks. 
Enormous quantities of cotton, wool, breadstuffs, provisions of all 
kinds and other commodities are bought and paid for by means of 
bills of exchange. The bank charges the agreed rate of exchange 
and interest to reimburse itself for the use of the money until the 
draft or bill can be collected. The bill is then forwarded for col- 
lection to the correspondent of the bank in the place where the 
draft is payable. 

It is a very common thing for the western merchant to make ad- 
vances to the farmer or planter to enable him to grow his crops. 
He may advance him cash or furnish him with the necessaries of 
life, usually -in either case taking as security a chattel mortgage on 
his stock and a lien upon the growing crops. Suppose the product 
to be cotton. When gathered the cotton is shipped to the mer- 
chant, who proceeds to sell it for account of the planter, and to re- 
imburse himself for the advances made. When sold the cotton is 
shipped East, and the transportation company's bill of lading for 
so many bales is attached to the merchant's draft on the consignee 
for the value of the cotton ; or the merchant may forward the 
goods to a commission merchant East for sale. He then attaches 
his draft for the approximate value of the goods, and goes to his 



132 PRACTICAL BANKING. 

local banker and sells his bill of exchange with documents, the latter 
being endorsed so as to convey the title to the cotton to the owner 
of the draft. 

Merchants in St. Louis, Chicago and the other Western and 
Southern points are constantly buying merchandise, groceries, dry 
goods, etc., from merchants in New York and the East. For this 
merchandise the West and South is indebted to New York and the 
East. On the other hand, the products of the West and South, 
cotton, grain, beef, pork, etc., are constantly being shipped North 
and East. 

The transactions in cotton, for example, exceed three hundred 
millions a year, a large portion of which is consigned to houses in 
the North, who make advances on the security of these instru- 
ments. Formerly the method of doing business was different. Then 
the banks in New York and other places would not advance on 
bills of lading and warehouse receipts, and if the broker or mer- 
chant did so he had the money from which the advance was 
made. In those days cotton was sold on sixty days' time. As soon 
as it was purchased in the North the planter drew on the re- 
ceiver, and after the bill was accepted the local bank cashed the 
paper. But now the Southern banks have not enough money to do 
this business, and cannot take the paper when offered, and conse- 
quently the planter consigns the cotton and draws for three-quarters 
or more, of its value. By the present method, it may be added, the 
receivers must have more capital than formerly, as then they had 
two months in which to sell and get money before their accept- 
ances became due. 

Several years ago a quantity of wheat was sent from Chicago on 
a bill of lading to order. The bank in that city advanced on it, 
and the grain was forwarded, under the direction of the bank, to 
a certain storehouse, with instructions to keep it until the drafts 
that represented the advance were paid. As these had several 
months to run, the storekeeper, who was a speculator, thought it 
would be a fine thing to use the grain, intending to put other 
grain, similar in quality and quantity, in its place before the drafts 
matured. Accordingly, he forwarded it to a house in New York 
for sale. The consignee was a careful, cautious man. He exam- 
ined the bill of lading, found that it was genuine, examined the 
wheat also, and found that it answered the description required, 
and made a large advance at the request of the consignor on the 
same. The grain was sold, and the balance, after deducting the 
charges, etc., was paid over to the storekeeper. 

It is needless to add that his speculation turned out disastrously, 
and consequently he could not replace the wheat. Then the bank 
in Chicago found out that their wheat was not where they sup- 
posed it to be. They traced the wheat into the hands of the con- 



DEALINGS IN EXCHANGE. 1 33 

signee of New York, and though he had obtained it in a perfectly- 
honest way, yet, inasmuch as the storekeeper had r.o title to it, he 
could convey no title to the consignee, and consequently the latter 
was held liable. This doctrine has made the business of advanc- 
ing money on the security of bills of lading more perilous than is 
agreeable to bankers and commission merchants, and the question 
arises whether it is not possible to grant greater protection to them 
than they now receive. Ought not common carriers to be held re- 
sponsible for the acts of their agents in issuing bills of lading ? A 
bill embodying this obligation was introduced into Congress at the 
last session. It substantially declares that bills of lading, issued by 
an agent authorized to issue such instruments, should be conclusive 
evidence against the carrier in the hands of a bona-fide holder for 
value, that the freight was actually received as in the bill of lading 
stated, and that the agent issuing the same had full authority to 
do so. To prevent this rule from becoming too severe in its practi- 
cal application as against the carriers, the proposed law contained 
a further provision that the carrier should not be responsible under 
the provisions of the same on any bill of lading on which he 
stamped the words " not negotiable," nor for any statement of fact 
in such a bill of lading caused wholly by the fraud of the shipper 
of the merchandise therein named, the holder of the bill, or the 
person under whom he claimed. 

It was hoped that this measure would meet the necessities of the 
case, for while it is true that much may be said upon the propriety 
of making principals responsible for the acts of their agents, it is 
also true that that doctrine may be carried to such an extent as 
to work positive injustice. To make carriers responsible to an un- 
limited amount upon bills of lading issued at remote and unim- 
portant stations by agents, of whose actions, owing to the circum- 
stances, carriers have but little actual knowledge or control, is per- 
haps to increase the risks of the transportation business beyond its 
legitimate limits. 

The practical effect of the bill would be, if enacted, that rail- 
road companies would issue to their agents generally non -negotiable 
bills of lading, which could not be made negotiable by any era- 
sure or alteration ; they would provide their trusted agents at the 
largest receiving depots with negotiable bills of lading, which would 
be issued as required. 

There is another kind of bill which may be described. A firm 
in New York sends an agent to Chicago to buy grain. Mr. Snooks, 
the agent, buys a considerable quantity, and in order to make pay- 
ment draws on his principal or consignor for the full amount of his 
engagement. He takes this bill to a bank and asks them to ad- 
vance the money, as in the case just mentioned. The bank, if hav- 
ing funds, is usually willing to grant the advance requested. 



134 PRACTICAL BANKING. 

The bank forwards the draft to its corresponding bank in New 
York, which presents it to the drawee in due time. He accepts 
it, and pays according to its tenor. In this case, as the wheat is 
purchased for the consignee, of course he is liable for the amount, 
and the bill is drawn for the full sum that is due for it. 

When a draft is offered for sale, how much will a bank pay for 
it? To answer this question clearly a brief explanation is necessary. 
If the business men in New York are selling about as many goods 
to the merchants in St. Louis as they, on the other hand, are sell- 
ing to New Yorkers, then the bills of exchange drawn in both 
cities will be at par — in other words, they will be transferred from 
one person to another for just the amount expressed on their face. 
There may be a very slight difference, enough to pay the banks 
for the trouble of buying and selling them ; but, for the moment, 
we will leave that fact out of sight. But now, suppose that the 
merchants of St. Louis are selling the New Yorkers three times as 
many goods as the former are buying in New York, then the mer- 
chants of New York would owe those of St. Louis three times as 
much money. The reader will perceive that there will be three times 
as many bills drawn by the merchants of St. Louis as by the New 
Yorkers, and if all the St. Louis merchants should wish to sell 
their bills they could not get par for them, because the buyers could 
not sell them at a profit, for the simple reason that there would 
be occasion for using only one-third of them in settling the 
debts due by the St. Louis merchants to the New Yorkers. On 
the other hand, if all the New Yorkers should desire to sell their 
bills they could get more than par for them, because the entire 
amount would settle only one-third of their indebtedness to the St. 
Louis merchants. The bills, therefore, which the New York mer- 
chants would draw on those in St. Louis would command a premium, 
while the bills drawn by the St. Louis merchants on the New York 
ones would be at a discount. It may be added here, in passing, 
that the bills drawn by the New York merchants on those in St. 
Louis would be called St. Louis exchange, and the bills drawn by 
the St. Louis merchants on those in New York, New York ex- 
change. When the New York merchants cannot get St. Louis ex- 
change at par, but must pay a premium therefor, the rate of ex- 
change as between the two cities is said to be against New York; 
if the St. Louis merchants should owe a balance to those in New 
York, then they would be obliged to pay a premium to get New 
York exchange with which to settle their indebtedness, and the 
rate of exchange would be in favor of New York. In other words, 
the rate of exchange is always against the place that owes the most 
money, and in favor of the place that owes the least. But the 
rate of exchange does not exceed the cost of transporting specie, 
and the cost of doing this between many places is small ; for this 



DEALINGS IN EXCHANGE. 135 

reason the rate of exchange between Boston and New York is very- 
little. Although a great many bills are drawn on these two cities, 
yet the rate is very low, because they are so near together, and 
the modes of communication are so perfect that money may be 
readily sent from one city to the other to discharge any indebted- 
ness which may exist between them which cannot be easily settled 
with the medium of bills of exchange. Further on we have given 
quotations of bills of exchange drawn on New York by other places. 
It will be seen that the rate is only five cents on $ 1,000 in Boston 
— a sum too insignificant to be considered. But between New York 
and other places farther away the rate is higher. 

One thing further ought to be said in this connection. At cer- 
tain seasons of the year a large amount of grain is shipped from 
the West to the East, also pork, beef, lard, and other provisions; 
enormous quantities of cotton are shipped from the South, too, 
and many other articles which need not be mentioned. At the 
same time, Western merchants are making large purchases in 
the East, New York, Philadelphia, Boston, and elsewhere. But 
the purchases made in the East are not so heavy as those made 
by the Eastern men of the West. The consequence is, there are 
not enough bills of exchange made in the East to pay all of 
the indebtedness to the West ; in other words, the rate of ex- 
change during those seasons of the year is pretty steadily against 
the Eastern cities. When the balance becomes large and the rate 
of exchange considerable, it is absolutely necessary to remit cur- 
rency to the West to restore the balance of trade. There is no 
other way of restoring it. Years ago, when money was less plen- 
tiful in the West than it is at the present time, there was a 
more urgent need of transmitting money to effect these settlements. 
Even now, large quantities go at certain seasons of the year. 

The banks buy bills of exchange in order to sell them again ; this 
is a part of their regular business. They buy at one rate and sell 
at a higher rate. When the exchange is said to be at par between 
two cities it is not strictly so, inasmuch as a bank will not give 
quite as much for a bill of exchange as it asks for one when sell- 
ing it. Of course, if it bought and sold at the same price no 
profit would be made in the business, and there would be no rea- 
son for undertaking it ; hence, the buying and selling rate is never 
the same. Thus, in an ordinary newspaper report we find the fol- 
lowing, which is extracted from the New York Journal of Com- 
merce of August ist: 

The following are the rates of exchange on New York : 
Savannah, buying >s ; selling )i premium. 
Charleston, buying par@>g ; selling 3-i6@^ premium. 
New Orleans commercial, $1.50 per $1,000 premium; bank, $2.50 
per $1,000 premium. 



I36 PRACTICAL BANKING. 

St. Louis. 50c. per $1,000 premium. 
Chicago, 75c. per $ 1,000 premium. 
Boston, par@5c. per $ 1,000 discount. 

When a Charleston bank, for example, buys exchange on New 
York, it expects to sell it again to persons who have payments to 
make in the latter city. It does not sell the same bills that it 
buys ; it could do so, however, if any persons desired them. What 
the bank actually does is to forward the bills purchased to the 
bank with which it corresponds in New York for collection; that 
bank presents them to the drawee at the proper time and they 
are paid, and the amount is credited to the Charleston Bank. 
When a man enters the Charleston Bank desirous of buying a 
bill of exchange on New York, it simply draws a bill on its cor- 
responding bank in that city and sells it to the party desiring the 
same, charging him therefor whatever the prevailing rate may be 
at that time. Just now, as will be seen from the above quotation 
from the newspaper, the rate is one-quarter of one per cent. 

Banks do not always charge their customers for a bill of exchange, 
either when selling or collecting it. The custom, however, of charg- 
ing generally prevails among banks ; nevertheless, the fact that ex- 
ceptions are sometimes made is worth noting. In the exceptional 
cases the dealer's account may be a very profitable one, and this favor 
is shown to him as a kind of reward or gratuity or premium to make 
him feel better satisfied with the bank. But a gratuity of this 
kind granted to a dealer is rather an outside matter, and does not 
pertain strictly to the banking business. 

It may be stated in this connection that some depositors, instead 
of going to their bank and buying a bill of exchange when they wish 
to pay a debt due in another city, send their check to the person 
whom they owe ; he receives it and deposits it in his bank which 
afterwards sends it for collection to the bank on which it is 
drawn. It will be seen that the depositor by doing this cuts off his 
bank from selling him a bill of exchange, and his real object of 
doing this is to save money by the operation. This has become a 
subject of considerable complaint among bankers. The question 
has been raised whether some method cannot be devised for col- 
lecting these checks, and thereby effecting a considerable saving 
among all the parties concerned. In that part of this work relat- 
ing to the Clearing-house, a chapter will be found pertaining to 
this subject. 

In regard to foreign bills, what we have already said applies 
in most respects to them. The rate of exchange does not exceed 
the cost of shipping gold from the debtor to the creditor. As 
between Great Britain and our own country this rate does not ex- 
ceed cents to the pound sterling. 



DEALINGS IN EXCHANGE. 1 37 

There are occasions though when the exchanges sink and rise 
much below the specie point, which is not accounted for by the 
single fact of a balance of indebtedness, either for or against a 
given country. Such an occasion occurred early in 1861, when war 
was impending between the North and South. Fluctuations in the 
American rates of exchange extended far below the specie point. 
The balance of trade was in favor of the United States, and a large 
sum was due from Great Britain. Yet, exporters sacrificed three or 
four per cent, on their bills in order to get their money imme- 
diately. The exporter had two courses open to him — either to sell 
his bills for what they would fetch, or to transmit them to Europe 
with instructions to his correspondents to demand payment and re- 
mit the amount in bullion. The former course was pursued, conse- 
quently the bills were sold at a large sacrifice. 

The items determining the question whether to send specie or 
buy a bill of exchange are the following : cost of sending specie, 
insurance thereon, and the loss of interest on the specie during 
shipment from one country to the other. 

Suppose that Jones owes a bill in London ; he goes to a house 
in Wall Street which deals in foreign bills. The par of exchange 
between the two countries is $ 4.86^ ; that is the legal value here 
of a pound sterling. The question in Jones' mind when he goes into 
this house is, whether he shall buy a bill and send that to Lon- 
don in discharge of his debt, or whether he shall transmit specie 
for the same purpose. Of course, he will do the thing which is 
cheapest. Remembering that the par of exchange between the two 
countries is $ 4.86^^, and that the cost of shipment is two cents 
in the pound, if he can buy a bill at less than $4.88/^ of course 
it would be cheaper for him to buy the bill than to send the 
specie. On the other hand, if he were obliged to pay more than 
$4.88 I 6 o 5 (J for the bill, then it will be cheaper to send the specie. 

Suppose an Englishman has a debtor in New York who owes 
him ^10,000, payable in that city, shall he send over there and get 
the money and import it into his own country, or shall he draw 
on his debtor for the amount and sell the bill? Remembering that 
the par of exchange is $4.86//^, and that it will cost him two 
cents in the pound to transport his specie, it is clear that any sum 
which he can get for his debt exceeding $4.84^ is a saving on 
the importation of gold. On the other hand, if he cannot sell the 
bill for $4.84^, but only for a sum considerably less than that 
figure, his more profitable course is to import specie. 

When bills are payable on time, say 30, 60 or 90 days, they com- 
mand a lower price than when they are payable at sight. The 
reason is, the buyer pays cash ; he sends the bill to Great Britain 
to pay his debt, but it is not paid, say, for 60 days, and as he is 
out of the money during the interval the bill is bought at a re- 
duced rate. 



I38 PRACTICAL BANKING. 

The sum paid for a time-bill, therefore, will depend on the 
length of time it has to run and the rate of interest in the country 
where the bill is payable. A bill drawn payable in London three 
months after date is bought by a banker at a price which is equal 
to a bill payable on demand, less three months' interest at the rate 
at that time prevailing in London, for the purchaser must discount 
the bill there at the ruling rate before he can make it equally 
available with a draft on demand. It may be added, that when for- 
eign bills are bought as an investment, a thing often done, it is 
for the purpose of earning the higher rate of a foreign country, in 
the place of the lower rate ruling at home. 

It may be well to note that when bills are quoted at $4.84 the 
quotation does not mean that they are two per cent, less than par, 
but simply that they can be bought for two cents and T % 5 j less 
than the regular value of a pound sterling. If, for example, a bill 
of exchange were drawn for £ 1,000, the amount would be equiva- 
lent to $4,866.50; if it were quoted at $4.85, this quotation would 
mean that the bill could be bought for $4,850.00, or $16.50 less 
than the par of exchange. 

Within a few years the practice has arisen of transferring money 
by telegraph, or, as it is termed by the newspapers, " cable trans- 
fer." By this method a merchant who desires to ship wheat to 
London can complete the transaction in a few hours. He can 
ship the wheat, telegraph the fact to the consignee at London, 
obtain particulars concerning the conditions of the market, and, if 
he think best, have the wheat sold at once, "to arrive," and to re- 
mit the proceeds through a London banker. A bill does not ap- 
pear at all in the transaction. The amount of business done in 
this manner has materially reduced the volume of bills in some 
places. In the Eastern trade with London, in which competition is 
exceedingly keen and the margin of profit consequently small, the 
telegraphic transfer system has been in use for several years. The 
amount of cable transfers between this country and European 
countries is constantly increasing. 



PRIVATE BANKS. 1 39 



CHAPTER XVII. 



PRIVATE BANK 



Although of less relative importance than formerly they were, pri- 
vate banks continue to maintain a good standing, and prove well 
adapted to some phases of the business of banking. According to 
the last report of the Comptroller of the Currency (December, 1883) 
the private banks hold about fifteen per cent, of the totals of capi- 
tal and deposits, excluding those of Savings banks. The capital 
employed by a private bank is apt to be variable in amount, not a 
fixed sum represented by stock certificates, so that the returns, 
which are made the basis of a tax, probably represent the minimum 
of capital employed. 

In addition to this, it may be said that many of the State banks, 
while running as such, are in reality private institutions, the capital 
stock being held by one or two owners, and the directorship being 
nominal. This use of bank organizations is facilitated by the ease 
with which they can be formed in most of the States, and is re- 
sorted to from various reasons. In some cases it is to have the 
benefit, when starting a new concern, of the prestige and credit 
which the title of "bank" is supposed to give; in others, and more 
frequently, to secure the immunity of limited liability ; in others, 
again, to retain the name and clientage of a long-established busi- 
ness. One of the largest State banks in the West, with a deposit 
line of millions, and a very large volume of business, reports a 
capital of $ ido,ooo, but in this instance the owner advertises that 
"the stockholders are individually responsible, without limit, for all 
the liabilities of this bank." 

In view of these facts it is probable that private banking occu- 
pies a rather more important place than the returns published by 
the Comptroller would indicate. 

His figures, however, furnish the only trustworthy basis of com- 
parison to be had, and from them some interesting results are to be 
obtained. 

The following table, taken from the last published volume of 
the Comptroller of the Currency, shows the geographical distribu- 
tion of bank capital and deposits, excluding Savings banks : 



140 



PRACTICAL BANKING. 



Geographical. 


National Banks. 


State Banks and Trust 
Companies. 


Private Banks. 


Division. 


No. 


Capital. 


Deposits. 


No. 


Capital. 


Deposits. 


No. 


Capital. 

Millions. 

6.22 
62.42 

6-33 
30.3I 

IO5.28 


Deposits. 


New Eng. States. 
Middle States. . . 
Southern States. 
W. States & Ter. 


560 
691 
214 
843 


Millions. 
166.23 

173-19 

34-8 
IIO.66 


Millions. 

193-15 

556.55 

68.84 

3OI.28 


40 
210 
248 
563 


Millions. 

8.30 

40.60 

25.34 
48.90 


Millions. 

31.64 

244 . 02 

45-94 
168.40 


94 

967 

289 

2062 


Millions. 

6-57 

112.69 

20.68 

149.02 


Totals 


2308 


484.88 


1,119.82 


106 1 


123.14 


490.00 


3412 


288.96 



The average capital and deposits 
are as follows : 

Capital. 

National banks $210,100 

State banks 116,000 

Private banks 30,800 



the three classes of banks 



Deposits. 

$485,200 

461,800 

84, 700 



The ratio of capital to deposits is, in the National banks 433 

11 11 a a State thanks 251 

* 11 11 a Private banks 364 

« // n a All classes 376 

The proportions of the totals of capital and deposits as held by 
each class in the several geographical divisions are given below : 

, Per Cent. 0/ Total. » 

bor the Three Classes. Capital. Deposits. 

New England States 254 .122 

Middle States 387 .481 

Southern States 093 .... .071 

Western States and Territories 266 . 326 

, Per Cent: 0/ Total. , 

For the National Banks. Capital. Deposits. 

New England States 343 .173 

Middle States 357 .497 

Southern States 072 .061 

Western States and Territories 228 . 269 

, Per Cent, of Total. , 

For State Banks and Trust Companies. Capital. Deposits. 

New England States 067 .... .064 

Middle States 330 .... .498 

Southern States 206 .... .094 

Western States and Territories . .397 .344 



, —Per Cent, of Total. < 

For Private Ba^ks. Capital. Deposits. 

New England States 059 .... .023 

Middle States 593 . 390 

Southern States 060 .... .071 

Western States and Territories 288 .... .516 



PRIVATE RANKS. 141 

These figures show, among other things, that the average of 
capital and deposits is, as might be expected, lowest in the private 
banks, and highest in the National banks. About midway between 
the two, in respect to average capital, come the State banks, while 
the average deposits of the latter nearly equal those of the National 
banks. As the profits of banking come chiefly from loaning de- 
posits, it would seem that in the greater ratio of deposits to capi- 
tal is to be found a source of gain to offset that which comes 
from circulation, especially when, as at present, the margin of profit 
from this source is reduced to so thin a shaving. The high ratio 
of capital shown by the National banks is due, in part at least, to 
the provision of the National Bank Act, which fixes the minimum 
limit of capital for banks organized thereunder, scaling them pro- 
portionately, in some degree, to the population of the towns and 
cities in which they are located. The ratio of capital to deposits 
of the private banks closely approximates to that shown by three 
classes taken as a whole. 

This analysis of the Comptroller's table furnishes other inter- 
esting and instructive comparisons, which, however, cannot be 
dwelt upon here, as they do not bear upon the subject oi this 
chapter. 

The general character and function of the private banks is shown 
by their small averages, and also by their geographical distribu- 
tions. Nearly two-thirds of their number, and over fifty per cent. 
of their deposits, are reported from the Western States and Ter- 
ritories. It is in that region of new and small communities where 
active enterprise and industry abound, along with a plentiful lack 
of capital, that the conditions are found most favorable to their 
establishment and maintenance. A town too small to establish or 
support a National bank, with a capital of fifty thousand dollars, 
may yet feel the need of banking facilities, and this need becomes 
more and more pressing until a leading merchant, or some man 
who has been in the way of buying notes or making small loans 
at remunerative rates, either assumes or gradually has forced upon 
him the functions of a banker and puts out h's sign. His capital 
may be, and usually is, small at the outset, but in a rural commun- 
ity every man is known to his neighbors. His "means" are closely 
estimated, his integrity and ability are pretty correctly gauged, his 
habits and manner of life are known. In respect to these he is sub- 
jected, not to periodical and perfunctory examinations by National 
or State officials, but to continuous and rigid watchfulness by self- 
constituted examiners who are very apt to reach correct results, al- 
though they are not permitted to count his cash or scrutinize his 
bills discounted and his ledger. If he passes this investigation suc- 
cessfully he will win the confidence of his townsmen and his busi- 
ness will prosper. Such has been the origin of many of the 



I4 2 PRACTICAL BANKING. 

largest and most respectable private institutions now in exist- 
ence. 

Private bankers, so far as they command public confidence, do 
so upon their reputation for wealth and their character for honesty 
and ability, and these are applied directly to the management of 
the business confided to them. Under these circumstances there 
must be, other things being equal, a greater concentration of re- 
sponsibility, a stronger sense of direct, personal liability than is felt 
by either the directors or officers of incorporated institutions, so 
that this form of banking offers to the dealer, equally with any 
other system, that which must after all be his chiefest and best 
guaranty, namely, faith in the integrity and capacity of the man- 
agement. 

Private banks, however, lack one important quality, that of per- 
manency. Especially is this the case in the United States, and as, 
from various causes, they may be wound up, they are little likely, 
in the great cities and larger tov/ns, to be replaced by similar in- 
stitutions. Gradually, with the growth and development of the 
country, the function which they are best fitted to fill diminishes, 
and their business is merged into or usurped by National and State 
banks ; and this tendency will continue. 

As to the details of their management, little need be said. These 
should in no wise differ from those of well-conducted National and 
State banks, and for the most part they are so managed. In rare 
instances private banks have adopted the practice of making public 
reports of their condition, and publishing them along with those 
furnished periodically by their National and State competitors. It 
would be well if in some way this could be made a universal 
custom. 

Occasionally there is to be found a banker who affects to despise 
theory and red tape, names by which he designates the restrictions 
which it is the intention of National and State statutes to impose, 
but it will generally prove that, if successful, he adheres to their 
substance if not to their form. The advantages which are some- 
times claimed to be found in an immunity from these salutary re- 
quirements are questionable. So far as such so-called advantages 
are embraced, their tendency is to allure men from the safe paths 
of correct banking; the prudent and successful bankers, under any 
system, are those who hold themselves strictly amenable to the 
rules and principles which experience has proved ought to govern. 

A few words should be said about the large banking houses that 
are only to be found in great commercial centers like New York. 
Many of them were originally founded with a view to conduct ing- 
a regular banking business, of receiving deposits and discounting 
commercial bills, and numbers of them continue to do a large 
business of this kind, especially for out of town correspondents. 



PRIVATE BANKS. 143 

But they have, for the most part, gone largely into the business of 
placing corporate loans, of acting as agents for States and munici- 
palities, and of dealing in foreign exchange. Along with their 
growth in this direction there has been a decline in that which 
may be more strictly termed banking, until many of them have 
come to resemble the great financial firms of London, who style 
themselves merchants, not bankers. 

A description of these and of their methods hardly falls within 
the scope of this book. It is true that dealing in exchange, for- 
eign as well as inland, is a perfectly legitimate if not a necessary 
branch of banking; but it is also true that the larger transac- 
tions in foreign exchange are conducted by private firms, many of 
whom receive no deposits. Several of the larger banks in New York 
have from time to time sought to enlarge their dealings in this 
direction, but never with any marked degree of succes:. 

The causes of this are not far to seek. A busy banker engrossed 
in the management of a large line cf deposits and discounts cannot 
scan with sufficient care the wide field of foreign exchanges. The 
conditions of supply and demand, the different standards of money, 
the changing rates of interest in the various financial centers, and 
the numerous other influences, ordinary and extraordinary, which 
affect the business of exchanges, demand nothing less than 
constant study by the man who would master them, and their 
perfect mastery is necessary. It is probable, too, that the foreign 
agencies which are available for a bank to employ do not render 
the effective sen-ice that is requisite ; that the London and Con- 
tinental branches, having common interests, which form a part of 
the organization of all the large houses dealing in exchange, are 
essential to success. This segregation of the exchange business 
from that of banking is, however, but an illustration of the in- 
evitable tendency to specialization which marks commercial prog- 
ress. 



144 PRACTICAL BANKING. 



CHAPTER XVIII. 
COUNTRY BANKING. 

General principles of banking apply alike to banks irrespective of 
location. Details in conducting the business may be materially in- 
fluenced by the bank's position in the country. The routine of 
large banks in commercial centers is usually the outgrowth of long 
experience, careful experiment and constant thought of improvement. 
The bank president in a country town, though he may have carved 
his way to position, through gradual advancement from runner or 
sweeping-boy, would, if placed at the head of one of the large 
banks of a metropolitan city, be found unable to manage its af- 
fairs. He may be a better financier and possess greater executive 
ability than many city ' bank presidents, but he would lack in that 
particular knowledge which comes only from experience. What we 
say of bank presidents will apply as well and possibly with more 
strength to other officers and to the clerical force. And in select- 
ing the president in our illustration we do not refer to that class 
who are presidents only in name. We mean presidents who are 
in every sense entitled to the position. And, thanks to the prog- 
ress of the times, figurehead presidents are not so numerous now 
as a few years ago. Sharp competition has lifted banking to a 
science. It has brought capable heads almost without exception 
into president's chairs. This is true of country as well as of city 
bank presidents. 

However true the above, it furnishes no evidence that less capa- 
bility, thoroughness, or good financiering is required in the country 
than in the city bank. Especially good judgment, careful calcula- 
tion, and a close watch over the finances are requisite in conduct- 
ing a country bank. Opportunities to loan money are not often 
as favorable in the country as in large business centers. The se- 
curities offered, too, are of a different kind. The country banker's 
customers are more frequently personal acquaintances and friends. 
He is called upon oftener to lay aside r>ersonal and friendly con- 
siderations in loans and discounts. He must know his customers 
better because he trusts them more on personal obligations. Loans 
in large cities are made largely on collateral securities. In country 
banks such securities are seldom received. The personal responsibil- 



COUNTRY BANKING. 145 

ity of the borrowers or of their endorsers is more usually the thing 
to be considered. 

The routine of bank work varies according to the volume of 
business transacted. The methods employed in a bank where the 
average balances due depositors reach half a million dollars would, 
in a bank where such balances did not exceed one hundred or two 
hundred thousand dollars, prove cumbersome and complicated. On 
the other hand a system which meets every requirement in the 
medium-size institution would, if introduced in the large city bank, 
be found wholly inadequate. The clerical force of a bank, too, has 
much to do with the method that may be introduced to the best 
advantage. In the larger city banks it is not unusual to see em- 
ployed as the clerical force twenty to forty persons. Many banks 
in small cities and towns find that two or three persons will do 
the work comfortably. We could name many banks of respectable 
size where the average deposits reach one hundred thousand to 
two hundred thousand dollars, in which not more than two clerks 
are employed, and some where one clerk and the cashier get 
through with the work. The cashier in such case is also paying 
teller, receiving teller, discount clerk, note teller, and general book- 
keeper. The work is often divided up between the two or three 
persons without any special reference to the functions of individual 
members in a fully organized force. 

The books used in a country bank do not differ materially in 
number or formular arrangement from those used in metropolitan 
places. The following are those in most common use : general led- 
ger, general journal, deposit journal or teller's cash, deposit ledger, 
sometimes called individual ledger and sometimes customers' ledger, 
collection register, discount register, tickler, sometimes two ticklers, 
foreign and domestic ; certificate of deposit register, draft register, 
deposit ledger balance book, or as some term it depositors' balance 
ledger, and offering book, the latter being sometimes dispensed 
with. Then there are also used in some banks a discount ledger 
and daily general balance book. A monthly statement book is kept 
by National and also by many private or State banks. 

An experienced country bank bookkeeper gives the following de- 
scription of his daily routine : 

" I enter in the journal all remittances in detail ; total amount of 
loans and notes discounted each day, the latter I get from the 
discount register; notes and loans paid, which come from the tick- 
ler, these being entered separately in the journal with the total only 
extended into the money column. Collections paid, if belonging to 
our correspondents, go in the journal ; if they do not belong to 
correspondents, they are remitted for direct ; the draft register, in 
these transactions, completes the entry which opens in the collection 
register. Drafts drawn on our correspondents are journalized and 



I46 PRACTICAL BANKING. 

other transactions such as exchange, interest, expense, etc. In clos- 
ing the journal for the day, the footings of the deposit journal, 
which with us are the total amount of checks paid and the total 
amount of deposits received, are entered. In one respect my journal 
represents a cash book. I bring forward each day the balance of 
cash on hand. This enables me to prove my cash by my journal 
by balancing it the same as a cash book. The journalizing is done 
at the close of banking hours and the entries are posted to the 
ledger during the first hours of the next day. As the posting is 
done, the new balances are entered in the daily balance book which 
is lying conveniently on the desk. Opposite the accounts not af- 
fected the previous day's balances are extended. When the posting 
is finished the daily balance book is footed, which furnishes a proof 
of the work. 

" On the debit side of the deposit journal appear all checks and 
certificates of deposit paid ; on the credit side are deposits received 
and certificates of deposit issued. The footings only of this book 
are journalized. The footings are made direct to the depositors' 
ledger. The account in the general ledger of " Deposits " is charged 
and credited from the journal. 

" Our ledgers are provided with balance columns, the general 
ledger having one account to a page, the deposit ledger two. In 
the general ledger there are four money columns, two for items 
and two for balances. In the deposit ledger there are but three 
columns, Dr., Cr., and balance. In the balance column over-drafts 
are distinguished from credit balances by being entered in red ink. 

"We use only one collection register. It is made to serve a 
double purpose, viz. : it is a record of bills, etc., brought in by our 
customers to be sent out for collection, and also of collections re- 
ceived from our correspondents and others, excepting sight drafts. 
After the record is made in the collection register, it is entered in 
the tickler under the day on which it falls due. When the collection 
is paid we make the proper notation in the tickler and either credit 
our correspondent or remit direct to the sender according to direc- 
tions. In case the collection is not paid and is protested, immediate 
notice is given. Of sight drafts received for collection we make no 
book record. The letter accompanying the collection is the orig- 
inal and only entry we have. After presenting the draft for payment 
we note on the accompanying letter how it was disposed of — whether 
paid or returned. If paid and belonging to a correspondent it is 
properly credited. If it does not come from a correspondent we 
remit for it immediately, so noting on the letter. The letter is then 
filed as a history of the transaction. Our letter-copying book fur- 
nishes a history of all collections passing through our hands." 

The cashier of a well regulated and carefully managed country 
bank says: 



COUNTRY BANKING. 147 

"Three persons do all the work in our bank. The president 
attends to the correspondence and takes charge of the loans and 
discounts. I perform the work of paying and receiving tellers and 
general bookkeeper, besides the ordinary duties of cashier. An as- 
sistant keeps the customer's ledger and helps me in some of the 
details about the other books. Our loans and discounts range 
from one hundred and fifty thousand to two hundred thousand 
dollars. The depositors' balances are in the aggregate usually not 
far from the loans and discounts. We hold readily convertible 
stocks and bonds to the amount of forty thousand to sixty thou- 
sand dollars. Our capital is two hundred thousand and circulation 
one hundred and sixty-two thousand. Cash on hand seldom gets 
below twenty thousand dollars, and our surplus is fifty thousand. 
The net profits enable us to pay the stockholders seven per cent., 
and we generally carry two or three per cent, to the surplus. A 
dull season occasionally cuts our dividends down to half the usual 
amount. We have run so close that no dividends were declared 
for a year. 

"My aim in the routine work is to avoid all unnecessary labor. I 
use as few books as possible. A few years ago I thought a huge 
journal was indispensable, but I have so systematized the work that 
I now have no use for it. In fact I have not used a journal at all 
for more than a year. The bookkeeping is done in such a manner 
that I can make up a verified statement of our condition within an 
hour any day after we close. Besides the general ledger I keep only 
the ordinary balance ledger for depositors' accounts. In this I also 
keep the accounts of banks and bankers. The accounts in the 
balance ledger are arranged alphabetically, and this book is kept 
so closely posted that the last check paid and last deposit made 
are entered up within a few minutes after the bank is closed for 
the day. We have only a few depositors who draw more than four 
or five checks in a day on an average. For these special cases I 
provide by giving their account a double space in the balance ledger. 
In posting the checks and deposits my assistant makes his entry 
direct from the checks and deposit slips. As the entry is made he 
marks the page by leaving projecting* at the top of the book a 
narrow strip of colored paper. This enables him to turn at once to 
the pages on which changes have been made during the day. These 
pages are footed, and the footings compared with the columns in 
my cash book, headed " depositors' debits " and " depositors' 
credits." The comparison furnishes a proof that all checks and 
deposits for the day have been posted. An additional test comes 
when the balances of all the accounts are extended for the next 
day and the footings compared with the general ledger account 
of " depositors " after the totals of the various books have been 
posted. I do not enter in my cash the names, but merely the 



148 PRACTICAL BANKING. 

amounts of debits and credits belonging to the depositors' accounts. 
After the work has been proven I take the balance ledger and 
have my assistant read over the checks and I compare his postings 
to satisfy myself that the postings are all properly made. When 
this is done I run over the general ledger, the postings to that hav- 
ing been made, and carry the balances to the daily balance sheet. 
This proves the entire work of the day." 

The Daily Balance Sheet is a device for proving the work of the 
bank bookkeeper and for preserving, in a concise and regular form, 
daily statements of the bank's condition. The new balances are ar- 
rived at daily through debit and credit differences. The illustration 
given in this chapter, though not a complete showing of all the ac- 
counts upon the specimen pages furnished for the purpose, will serve 
to demonstrate the principles of the work. For example in explan- 
ation see the first account, viz.: Loans and Discounts. The balance 
on the evening of August 15 was 167,150.73. The following day 
there were payments in excess of new loans and discounts to 
amount of 311.44. This credit difference is subtracted from the 
debit balance, leaving the new debit balance 166,839.29. Again; the 
balance against the First National of Philadelphia on the evening 
of August 15 is 40,737.31. On the following day the remittance 
to that bank in excess of credits given it were 23,513.10. The 
debtor difference is added to the debit balance, and the new bal- 
ance is 64,250.41. The first or upper line of footings represent the 
total balances of banks and bankers' accounts, the lower line of 
footings are the proofs or trial balance. All the entries in this 
book may be made in either ink or pencil as may be desired. 
Ink is, of course, preferable, but as they form only an auxiliary 
proof and leave a record for future reference, if desired, there is 
no special objection to pencilings. 



General Ledger Accounts not Appearing on Illustration of 
Daily Balance Sheet. {See Appendix?) 

Circulating Notes Received. 
Unpaid Dividends. 
Certificates of Deposit. 
Cashier's Checks. 
Remittances. 

f Notes of this Bank. 

I Notes of other National Banks. 
Cash -j U. S. Legal Tenders. 
Gold Coin. 

I Silver $ Nickels $ 

Treasurer of United States. 
Comptroller of the Currency. 
Suspense Account. 



PART II. 
SAVINGS BANKS 



UTILITY OF SAVINGS BANKS. 151 



CHAPTER I. 
UTILITY OP SAVINGS BANKS. 



This class differs from State or National banks in that they have 
no special capital owned by a few or by many individuals, but their 
capital is the deposited money of a great many saving people. 
They are mutual. That is, every one who puts money in is prac- 
tically an owner in the bank, and the profit made by the bank, 
after paying taxes and expenses, and putting aside a proper reserve, 
is paid to the parties whose money earns the profit. The people, 
in their dimes and dollars and tens and hundreds, own the Savings 
banks. Hence it is that these institutions are very rigorously 
guarded by the laws of our States. It is not the idea of a Savings 
bank to pay a large percentage of interest. Safety is the first thing, 
and in order to be safe, only choice and high-priced investments 
can be purchased by the managers. 

Savings banks are voluntary trusteeships, undertaken by a few 
persons in a particular locality, either self-appointed, renewing their 
own number as vacancies occur, or chosen by the depositors. The 
corporate body thus formed receives deposits or funds,* small in 
amount, and from the poorer classes of society. It undertakes to 
invest them with due diligence in the safest practicable way, and to 
divide all the income, after paying necessary expenses, among the 
depositors, at stated and convenient times. None of the profit on 
these investments belongs to the corporation itself. All of it be- 
longs to the depositors. If a surplus is created, it is only for a 
safeguard against occasional losses or emergencies. In every re- 
spect, the corporation is nothing but the agent or trustee of the 
whole body of depositors, and works for their account and benefit, 
not for its own. 

" The principal reason for the creation of a Savings bank is to 
offer to the poor and to those of small incomes a means of keeping 
safe their occasional savings. A secondary reason is to enable such 
persons, fey combining these small sums, to invest them, so as to 
earn some interest. Such persons do not ordinarily draw out their 
deposits, except on an emergency. The deposits are made to meet 
emergencies in the private life of the depositors, and are not sub- 
ject to the daily calls of business. It thus appears that, as such 



152 PRACTICAL BANKING. 

emergencies usually result from sickness or lack of employment, the 
drafts will be gradual, not sudden, and are not subject to sudden 
increase by reason of commercial revulsions, unless in the excep- 
tional case of panic. Large deposits, which do not come from sav- 
ings, but which are the capital of persons who have acquired 
wealth, should be rejected.* They can invest their own funds, and 
they are likely to withdraw their deposits suddenly and in large 
sums." 

In the introductory chapter of this part of our work we shall 
briefly set forth the utility of Savings banks. This, however, has 
been well done by another, Henry L. Lamb, and we cannot improve 
on what he has said concerning the utility of these institutions. 
His paper was read at an annual meeting of the American Bank- 
ers' Association in 1879, when he was acting as superintendent of the 
banking department of the State of New York. 

First. — The savings institution is founded to help men and 
women. 

Some one has said that they are meant "to help men to help 
themselves." It is not in simple human nature to save and to put 
by a store for the ever possible rainy day. The savage and the 
child go on in reckless improvidence. Some one must take care 
of the improvident, as society is organized now in the enlightened 
nations. There are saving people and spending people. There are 
people who create property and people who waste it. There are 
people who earn money and keep it, and people, too, who earn 
money and squander it. This is inevitable. By and by the spend- 

* " Certainly, the use of these institutions should be confined to the class for wljose 
benefit they were devised, and only that class who have not the time, opportunity, or 
ability to investigate and determine for themselves a proper investment or adequate means to 
enable them to pay for the information through private sources, should be permitted to be- 
come depositors. # 

In case of temporary embarrassment, the largest deposits, those belonging to what may 
be properly termed a capitalist class, would be soonest withdrawn, and whenever private 
investment promises better returns these funds leave the banks. Whenever money is cheap 
and hard to place, this class solves the difficulties of investment by placing their moneys 
in our Savings banks. Instead of supporting the banks, they make of them a convenience, 
and prey upon their resources ; instead of being an element of strength, they are a constant 
menace. 

Most States recognize this principle, and have fixed limitations designed to exclude this 
class of depositors. Instance : Connecticut limits amounts receivable in any one year 
from a single individual to # 1,000. Vermont limits the aggregate to $2,000. New York 
limits the aggregate to $ 3,000. Massachusetts limits deposits to $1,000 from each indi- 
vidual, and allows it, by accumulation of interest, to reach $ 1,600, but allows no dividend 
upon any sum exceeding $ 1,600. Each of these States makes varying exceptions as to trust 
funds, &c. 

Recently, while examining a discount bank, I found twelve pass books from several dif- 
ferent banks, and in four different names, but all belonging to the same individual, calling 
for sums aggregating $ 28,000, put up as collaterals for a loan. While this shows that any 
law is liable to evasion, it emphasizes the necessity for specific regulations as to the re- 
ception of deposits — Extract from address of A . B. Hepburn, Bank Superintendent of 
New York, at the American Bankers' Association in 1882. 



UTILITY OF SAVINGS BANKS. 1 53 

thrift has run his life, and comes in poverty and need to his 
brother and asks for support. Misfortune may follow the prudent 
and bring them, by unexpected reverses, to want. In the artificial 
conditions which our civilization creates, the demands of the needy 
are greater than they were in primitive conditions of living. Such 
demands as these meet the intensely practical mind to-day, just as 
they do that of the philanthropic. So they did a hundred years 
ago. 

When a great want is felt in the world a host of men begin to 
try to solve the problem to satisfy the want. Great inventions then 
seem to be contemporaneously made by different men. This very 
question of dealing with simple men and women, of taking care of 
the humble who had no estates, of taking care of the poor who 
come to want by improvidence or by misfortune, appears to have 
received the studious notice of the economist and philanthropist 
at the same time. While Jeremy Bentham and Malthus enforced 
the benefits of providence and savings in the interests of the great 
body of the people as well as of those who saved, about the open- 
ing of this century an English clergyman and a Scotch minister, 
each in his own parish, set in operation a plan for his parishioners 
to save money, which embodies in substance the fundamental prin- 
ciple of the savings institution. Contemporaneously, a woman, Mrs. 
Priscilla Wakefield, established such an organization in England. 
Similar ideas also were advanced at the same period by a London 
magistrate, Patrick Colquhoun, who wrote upon the question of 
popular indigence and measures for its relief as early as 1806. 

In America, in 18 16 and 181 7, the needs and the claims of the 
poor awakened attention at Boston and New York, and thought was 
immediately directed towards the savings institution, because it was 
deemed most helpful. At Boston, in 1816, it was proposed "to 
form an institution for the security and improvement of the sav- 
ings of persons in humble life until required by their wants and 
desires." 

The first Savings bank in the State of New York seems to be 
the direct result of a meeting of citizens at the New York Hospi- 
tal on December 16, 181 7, to take into consideration the subject of 
pauperism. A society was there formed for the prevention of pau- 
perism. A committee was then appointed to report on the prevail- 
ing causes of poverty. The report recites, among other causes, that 
"Prodigality is comparative among the poor; it prevails to a great 
extent in inattention to those small but frequent savings when labor 
is plentiful which may go to meet privation in unfavorable seasons." 
When the constitution of this society was drafted it declared that 
one prime purpose of the organization should be "to hold out in- 
ducements to those people to economy and saving from the fruits 
of their own industry in seasons of great abundance." The earnest- 



154 PRACTICAL BANKING. 

ness of the men who were members of this organization is proved 
in the passage of an act, upon their petitition, by the Legislature 
of 1 819, for the incorporation of the Bank for Savings. In each of 
the two years thereafter a Savings bank was incorporated in this 
State. 

Second. — The savings institution is not organized to make money. 

Right here it is wholly different from the discount bank in motive 
and aim. The Savings bank receives money chiefly to keep it se- 
curely for the benefit of the depositors. The ordinary bank per- 
forms some service for such as need it in business, and justly is 
paid for such service. The aim of the bank is profit — gain upon 
the capital which is employed in the work. The savings institution 
seeks to serve those who are not fitted by knowledge and habit 
for safely keeping and investing their money when saved. The dis- 
count bank is equipped with money, with skill in business, with 
acquaintance with monetary affairs, and offers to the busy managers 
of commerce and trade its aid in making exchanges and in all their 
operations which require its assistance. The savings bank opens 
its doors to savers; it receives and permanently invests money. 
The bank opens its doors to borrowers and users of money, for 
pay. One serves by receiving and keeping, the other serves by lend- 
ing. One aims at profit, the other never makes profit an end ; the 
Savings institution is a receiving reservoir from little springs ; the 
bank is a distributing reservoir of accumulated capital. 

There ought to be, therefore, no antagonism between the Savings 
bank and the bank. If the Savings bank is kept to its original 
idea, as it should be, it will not encroach on the domain of the 
bank, and the last will by no means come in conflict with the 
Savings bank. The time has been when men had the idea that the 
best way to get on in the world was to rob each other. Juster 
ideas than that now prevail. The Savings institution is a concep- 
tion which demonstrates this truth. It is the reverse of the com- 
munistic notion recently prevalent. The communist proposes the 
division of capital, the drone to share with the worker in the ac- 
cumulation of his production. The Savings institution aims at mak- 
ing all men producers and savers too, It offers the aid of the 
strong, who can manage well, to the weak, to receive their small 
gains and hold them securely against that time when need or de- 
sire may require the store for prudent use. The Savings institution 
enlarges the number of capitalists ; it reduces the army of possible 
prodigals, paupers and tramps. The communist is the enemy of 
capital, for he proposes to rob the man who has money. The 
Savings-bank depositor is himself an owner of money. He belongs 
to the conservatives by the logical tendency of his position. In 
this land, where there is such room for growth, such demand for 
money, such room for men of the right stamp, the Savings institu- 



UTILITY OF SAVINGS BANKS. 1 55 

tion is an educator, is the friend of capital, of order and stability, 
both political and social. Whoever earns and saves, lengthens con- 
tinuously his arms for service. Whoever earns and spends as he 
goes does not lengthen his arms, but shortens his legs for running 
his race in life. While the Savings bank is not organized to make 
money it is most profitable in several ways. It accumulates money; 
it inspires and trains men to get money and to the wise use of 
it ; it spares those who have capital from charges upon it for the 
support of those who might otherwise become poor; it makes 
better men and families and better citizens; it adds to the sum of 
National resources in money, and adds to the means for advance- 
ment in material improvement. It is thus a many-sided benefaction 
— to those out of it, as well as to those in it. 

Third. — The Savings institution does not hoard money. 

Some men object to the Savings institution because it withholds 
money from circulation. This is an obvious fallacy. If the de- 
positors in such institutions were to save an amount of money as 
large as - they deposit, a great part of it would be hoarded. All 
who have acquaintance with Savings banks know this. If a panic 
comes upon the depositors in one institution, or in several, and 
money is drawn in large sums, much of it is hoarded and much of 
it is squandered. After the fright is over the identical money that 
was withdrawn and kept is often returned for deposit months after 
withdrawal. This demonstration of the disposition of saving men 
to hoard is always made under these conditions. The Savings bank 
encourages the habit of saving. Many of you, I have no doubt, 
were born and bred as boys on farms. You may still recollect the 
eager hunt for hens' nests in the hay mows, bays and scaffolds of 
the old weather-stained barns ; you will recollect, too, perhaps, that 
the nests require the invitation of a " nest egg " to coax the fe- 
cund fowl to make her diurnal deposit in it. I think that men 
need such solicitation, too. The man who is profligate while he 
has nothing to "lay to," will often become stingily saving when he 
has a " nest egg " to win him from other temptations. Those who 
can do this, and would otherwise lay their gains in stockings, pre- 
fer the Savings bank, for money there makes money, which this 
class of men are quick to see. 

The Savings bank invests its money. Its managers are, in theory, 
intelligent men, competent to make safe investments in solid secu- 
rities. The genuine Savings bank is conservative, and does not en- 
courage speculation, ballooning, and failure with disaster. It puts 
money into circulation, and does not withhold it. It adds substan- 
tially to the sum of active capital in the country, which is not 
less useful because it is permanently invested. These little savings, 
when gathered into masses and discreetly invested, serve great pur- 
poses. As the tiny streams which trickle from hidden springs upon 



156 PRACTICAL BANKING. 

remote hill sides flow together and make the willing power to turn 
mill wheels, or to furnish the water for the thirsty people of a great 
city, so these savings of humble people and of small owners, when 
aggregated, become available to build the mills, or to buy the 
wheels for the mills, or to lay the pipes to convey the water to the 
thirsty town, or to help the thrifty saver to rear his own house, or 
to aid the State itself when its financial burdens are too great to 
be discharged at once. 

Fourth. — Why should any man become the manager of a Savings 
bank? 

I have been asked this question often. The trustee cannot be 
paid. Why should a man do anything that will not pay him ? I 
hope I have given some reasons why a Savings bank does pay the 
community in which it is placed. No man with capital can turn 
a deaf ear to the promise to save that capital from the moth and 
rust of taxation. You know that now. A host of Savings-bank de- 
positors is a better class of citizens than an army of tramps. The 
self-sustaining person, who is self-respecting, too, is a safer neigh- 
bor than the vicious drone or the indolent beggar. The Savings 
bank is not a pauperizing charity. But it is a school, teaching the 
sound lessons of self-denial, of economy, and of sober industry. 

Ill fares the land, to Hastening ills a prey, 
Where wealth accumulates and men decay, 

says the poet. 

But if wealth accumulates, and men and women grow stronger 
by its possession, and better in character and aspiration by the 
habits of saving, happy is the land where they dwell. There is no 
man who has capital, who is acquiring capital, that has not, in 
fact, an interest in the success of Savings banks, though he may not 
have seen this or felt it. You, gentlemen, give freely to support 
churches ; you pay taxes to maintain schools, to watch criminals, 
to punish the bad. These things cost you money, and a good 
round sum, too. Have not you, has not every man who can do it, 
an interest in these institutions, which are saving in many senses ? 

Their great success will spare your own pockets; their great suc- 
cess will add to the total of the resources which can find profit- 
able employment in this land ; their great success will breed a class 
of people of moderate means, who will look up in the world, and 
not down. Why should not any man, every man, indeed, who has 
the capacity for the work, lend something of his time, something 
of his judgment and knowledge, to the people that need them ? 
He shall lend not chiefly for the sake of the borrower of such ser- 
vices, but for his own sake. I put it upon the last ground that 
the wisest self-interest of every man of substance will dictate his 
support of Savings banks in which he is a shareholder just so long 
as he has any relations with other men and is a citizen bearing the 
tax burdens of a citizen. 



UTILITY OF SAVINGS BANKS. 157 

Fifth. — The Savings bank is one of the best safeguards of property. 

Trustee service is more agreeable than jury duty. Personal atten- 
tion in a Savings bank is more economical than constables, police, 
poormasters, hospitals, prisons. 

It is sure that the three-quarters of a million of depositors in 
Savings banks in this imperial State are arrayed as a solid phalanx 
against communism, rioting and disorder. The facts are too sig- 
nificant to be disregarded by intelligent men. Ireland, Germany and 
Russia to-day should admonish the American citizen, who has prop- 
erty, and who is a leader in business and in politics, that security 
and progress will be found in the diffusion of property among the 
great body of people, by training them to its acquisition and main- 
tenance. The Savings bank is a fortress which resists the danger- 
ous classes. It is garrisoned by men who stand actually for their 
altars and their fires on their own hearthstones. Who of you has 
not a personal interest in this army, which is perfectly loyal always, 
and which is not the consumer of your goods, but is itself a con- 
stant producer and saver, as well as guardian ? 

The real Savings bank in our country has done great good. It 
can come nearer in practice to the ideal. It contains infinite 
possibilities to this teeming land for future beneficence as respects 
depositors, and safety and advantage in respect to other men with 
capital. To bring these institutions, which save money and save 
men, at once, up to a higher standard of excellence in administra- 
tion and to a higher degree of utility and results and influence, 
only demands the moderate attention and service of thoroughly 
practical men. The Savings institution is benevolent on one side, 
but it is a business enterprise at bottom, and must be conducted 
on business principles. When it is so conducted it is one of the 
most profitable investments that can be established. It does not 
pay the honest manager in dividends and salaries, but it saves him 
a vast deal now, and will save his children after him a vast deal 
more, and will pay for all the service which he can give it. 



1-53 PRACTICAL BANKING. 



CHAPTER II. 

JANITOR. 

In order to give the reader as clear an idea as possible of the 
interior workings of the modern Savings bank, we will describe the 
functions and the daily routine of each person connected with one 
of these institutions. We will begin with the janitor. 

Since seven o'clock, when he relieved the night watchman, this 
humble, but important functionary has been preparing the bank for 
the business of the day. He has swept and dusted the banking 
room, seen that the ink, pens and other appliances were provided, 
and has stamped with the proper date the books and documents 
representing the business of the previous day. The tickets, when 
made out by the clerks, are purposely left undated ; when made out 
by the depositors there are sometimes errors or discrepancies in the 
date, therefore this stamping gives the official date of their passing 
through the books. 

At the opening of the bank at nine o'clock, the next duty of 
the janitor will be to arrange the many account books in their 
proper places for the business of the day. During the active busi- 
ness hours he sees that persons wishing to do business are directed 
to the proper department of the bank, he attends to any calls or 
messages between those departments or outside of the bank, he 
carries the deposits to the deposit banks, he copies letters or 
places them in the files, sees that the doors are opened and closed 
at the proper hours. These hours are from ten to three daily, but 
on Mondays and Saturdays the closing hour is seven P. M. 

Between nine and half-past the members of the executive staff 
of the bank begin to arrive. The treasurer, the secretary, the pay- 
ing teller, the receiving teller and the bookkeepers. The duties of 
these officials will be described in order, but first, we will consider 
the person for whose benefit ahd on whose behalf they are acting 
in every official transaction of the day, namely, the depositor. 



THE DEPOSITOR. 1 59 



CHAPTER III. 
THE DEPOSITOR. 

As a convenient, though perhaps unfamiliar name, we will call 
our typical depositor John Smith. John Smith arrives at the bank 
soon after its opening on the day in question, having in his pos- 
session $ 1, which, contrary to the usual desires of mankind, he is 
anxious to part with. He proposes to relinquish the possession of 
this dollar for an indefinite time and to place it in the custody of 
the bank. Now, what are John Smith's motives in this eccentric 
conduct ? 

First. — He thinks that the dollar out of his hands will be less 
likely to be uselessly spent than in his hands, which is incon- 
testable. 

Second. — He thinks that the dollar out of his hands will be less 
likely to be lost or destroyed than if in his possession. 

Third. — He believes that, aggregated with a great many thousand 
other dollars belonging to other depositors, this dollar of his will 
possess an earning power which, in his pocket, it would entirely 
lack. These homely thoughts of John Smith represent or convey 
the Savings banks' reason for existence. Their object is three-fold. 
To prevent waste, to prevent loss, to give profit. . 

Again, taking up the practical operations of John Smith's case, 
we will suppose that this is his first attempt at saving. As he 
comes into the bank, if intelligent, he will look about him, and 
see a very plainly expressed printed notice, headed, "how to open 
an account." If unintelligent, or uneducated, he will probably 
apply to the janitor as a guide, philosopher and friend, who shall 
give him the necessary information for becoming a member of the 
numerous partnership, which owns the handsome building in which 
he stands, and all its contents. Following the directions of the 
notice referred to, he goes to one of the tables or desks on which 
are writing materials and all the necessary blank forms, takes a 
deposit ticket, which is printed on green paper to make it easily 
distinguishable, and writes, 

First, the amount of his proposed investment ; second, his name ; 
third, his address, and lastly, the date. 

It is not usual in Savings banks, in general, that the tickets, 



160 PRACTICAL BANKING. 

either for drawing or depositing, should be made out by the 
depositor. This bank finds it in every respect preferable so to do. 
The average style of writing is better than would probably be the 
case if made out by a clerk working rapidly, because each de- 
positor naturally takes pains with his own ticket. There is the 
further great advantage that we have his evidence as to the amount 
and circumstances in case of future dispute. It is too much the 
practice in Savings banks to assume that the depositor is unedu- 
cated and ignorant. The writer once mentioned this idea of tickets 
made out by the depositors themselves in the largest of our Sav- 
ings banks, and was answered, " well one out of every three of our 
depositors is unable to write." He inquired whether this propor- 
tion was obtained by actual count or by guess. On being informed 
that it was merely a guess, he suggested that a count be made of 
a few pages of the signature book, and it was found that the pro- 
portion was one in nineteen ; that is, eighteen able to write, to 
one who is obliged to make a cross. In our bank the proportion 
is about one to twenty. It is found also that the depositors, 
when once accustomed to this more dignified way of doing busi- 
ness, far prefer it. They feel as if they were treated with more 
respect, not as inferiors or subjects of charity, and finally there is 
a great saving of time and error for the receiving teller. 

This he carries to the window occupied by the receiving teller. 
He hands the ticket and the dollar to that official, and also names 
the amount aloud, " one dollar," or if English be not his native 
language, he is perfectly at liberty to say " ein thaler," "un dollard," 
" uno scudo," " un peso," or whatever equivalent expression in his 
own vernacular may signify his intent. Now the functions of the 
receiving teller begin, and Smith is only informed that he must 
next step to the signature desk. Here lies a large book on a re- 
volving desk, and, like a guest in a hotel, he is requested to write 
his name and address, or if unable to write, his name is written 
for him, and he makes his mark, but instead of getting the number 
of his room, the number of his pass book is printed opposite the 
line on which he writes. The clerk, whom he now sees, obtains 
from him, besides his name and address, the following information : 
Where do you live ? What is your age ? Are you married, single, 
or a widower? Are you colored ? What is, or was, your father's 
name? Mother's name? Wife's name? Occupation? 

The particular points of information obtained from the de- 
positor vary in different banks. The place of nativity is taken 
by some, and this would seem an excellent test of identity. The 
color of the eye, as being the one bodily characteristic which is 
unchangeable, is also taken by some institutions. Perhaps in the 
future photography may come to our aid, and instantaneous photo- 
graphs of small size be taken on the occasion of the first deposit. 



THE DEPOSITOR. l6l 

The entries in the signature book having been made, the clerk 
again asks Mr. Smith "how much money did you deposit?" and on 
being answered correctly hands him the pass book. 
' This pass book has stamped upon it, both on the outside and 
inside, the same number which stands opposite the depositor's 
name in the signature book, and this number will hereafter be the 
key to all the dealings of Mr. Smith with the bank. It is written 
on the deposit ticket, it is written opposite the first entry in the 
books of the bank, it stands at the head of his ledger account. 

* * * These consecutive numbers are printed wherever they 
possibly can be, to avoid mistakes, but as Smith will very prob- 
ably forget the number of his book, especially if he is a careless 
person, and loses the book, it is necessary somewhere to be able 
to find him by name. Therefore, the signature clerk has one more 
duty to perform in connection with Smith's account. Lying op- 
posite him is a pile of cards about one inch by three. On the 
top one of these, which contains Smith's number, the signature 
clerk writes very plainly John Smith. This, as will be seen after- 
wards, serves as an entry in the alphabetical index. 

When next Mr. Smith has any sum of money to deposit, he 
will make out and sign his deposit ticket as before, except that 
he now knows the number of his book, and will insert that in 
the proper place. Perhaps he will find several other customers 
awaiting their turn at the receiving teller's window. In this case, 
he must fall in at the end of the line in proper order. But 
Smith will not go on depositing forever. His deposit of savings 
has only half performed its mission while it is lying in bank. 
Ultimately it is to be used. When Smith has become sufficient 
of a capitalist to invest his money at his own discretion, then he 
will wish to withdraw his accumulations. But frequently before 
that time he wearies of well doing, or he miscalculates the amount 
which he can spare from his current expenditure, and it is neces- 
sary for him to withdraw a portion, or the whole; or this neces- 
sity may be caused by removal, by calamity, by sickness, or by 
death. In this case he finds his way to the paying teller's window, 
having first filled out a ticket of another form, the draft ticket. 
This he presents with his book, and again names the sum to be 
withdrawn. After proper scrutiny, which will be described under 
the paying teller's duties, his book is handed to him again, and 
between its leaves, instead of the draft ticket, is the money de- 
sired. If this exhausts his account, the form called a closing draft 
is used. In this case, the pass-book is surrendered, and is filed 
away according to its numerical order. But, if Mr. Smith continues 
his deposits for a sufficient length of time, he will be entitled to 
his share of the earnings. Any amount over $ 5, participates in the 
profits of the concern. It is considered that the use of any sum 



l62 PRACTICAL BANKING. 

less than that does not more than pay for stationery and labor. 
Semi-annually, a few days after the first of January, and a few 
days after the first of July, the book may be presented for the 
purpose of entering therein the dividends to which he is entitled, 
In the majority of cases, Smith takes it for granted that the cal- 
culation of this dividend is correct, though occasionally, he scru- 
tinizes it very carefully. 

The conditions of this dividend in many institutions, are these:— 
Deposits begin to participate in the dividend on the first day of 
each quarter, but they only are entitled to it if they remain till 
the end of the half year; thus, money which is in bank on the 
first day of January, provided it remains until the first day of 
July, receives a half year's dividend, but if withdrawn, even during 
June, receives nothing. If in bank on the first of April, and re- 
maining until the first of July untouched, it draws a quarter's 
dividend. Furthermore, the first few days of each quarter, may be 
allowed to the depositor as a sort of grace, the limit being 10 days, 
at the half-year, and three days at the quarter. 

The dividend is now usually spoken of as interest. As the 
rate in the State of New York is not promised in advance, 
but depends upon the profits of the half year, the term dividend, 
is considered more proper, but considering that it depends on the 
time, it is in that respect, strictly speaking, interest. The word in- 
terest-dividend would seem to be the most exact. 

A few banks in New York allow interest to begin on the 
first day of each month, instead of the first day of each quarter, 
but with the same provision as to forfeiture in case of withdrawal 
before the end of the half year. In Pennsylvania, in some parts 
of New England, and in Great Britain, money bears interest for 
every full calendar month during which it has remained undis- 
turbed, and is credited only once a year, unless the account is 
closed. 

The current rate at present (1884) is wavering between four 
per cent, and three per cent. Ten years ago, the current rate 
for Savings deposits was six per cent., but the general investment 
rate has greatly lowered. Some banks make a distinction in rate 
for different amounts. For example, four per cent, on amounts not 
exceeding $1000, and three per cent, on any excess over $1000. Or 
on another plan, less than $500 receives four per cent., but if the 
whole deposit exceed $500, only three per cent, is paid on the 
whole. On this manifestly unjust plan, a depositor whose book has 
amounted to $501, receives absolutely less of the profits, than he 
whose aggregate is only $499. It would be better to preserve rig- 
orously a limit as to the maximum which any depositor shall ac- 
cumulate, or which he shall deposit in a given period, and then 
divide the profits pro rata, on all sums. 



THE DEPOSITOR. 163 

If interest is not withdrawn, it will itself draw interest as a de- 
posit. The more ignorant depositors, however, frequently desire to 
draw their interest, even if they immediately re-deposit it, forfeit- 
ing thereby a quarter's interest on it. Their intellect in money- 
matters has not yet been sufficiently developed for them to grasp 
the idea that there can be an increase of money value, without a 
visible amount or representative having touched their hands. 

Besides the individual deposit which John Smith or Mary Smith 
may have made in their own names, there are various other forms. 
Frequently, money is deposited "John Smith, in trust for William 
Jones," or "John Smith, Trustee for William Jones." Often this 
trust is to some extent a fiction, the legal effect of which is that, 
upon the death of Smith, Jones will receive the deposit without 
the formalities and expense of administration. Frequently, also, it 
is intended as an evasion of that rule which makes a different rate 
of interest for higher sums. The thrifty John Smith will have the 
maximum amount in his own name, and scattered through the 
books of the bank you will again meet him as trustee for his wife, 
trustee for each of his children, trustee for his son-in-law, etc. 
Accounts may be opened in two names jointly, as John Smith or 
Mary Smith. Sometimes John Smith and Mary Smith. In the for- 
mer case the book is marked "To be drawn by either signature." 
In the latter case, "To be drawn by both signatures only." The 
money of benevolent and other associations is frequently accepted 
by the Savings banks on deposit, generally with special regulations 
as to the officials who shall have control of the funds. A special 
signature book is provided for societies, in which is allowed, not a 
single line, but an entire page, so as to provide for changes in 
officers. 

Smith occasionally loses his book, and it is then his duty to re- 
port it to a clerk in charge of that department. It is usually re- 
quired that he advertise its loss for a certain number of times in 
one of the daily papers. The reason of this precaution is that he 
may have assigned his claim to the moneys in the book to an in- 
nocent holder, and be thus endeavoring to obtain payment twice. 
If the book is not then returned he is required to execute a bond 
of indemnity, with a surety, making the bank good against any 
loss from adverse claims, and to make an affidavit as to the cir- 
cumstances of the loss. 

When Smith has gone over to the great majority of Smiths his 
legal representatives will ultimately appear at the bank, presenting 
letters testamentary, or letters of administration from the Surrogate 
of the County. Generally, upon these being admitted as correct, 
the money is transferred, without loss of interest, to a new book 
in the name of the executors or administrators, or paid to them 
in cash. Sometimes their names are simply added at the head of 



164 PRACTICAL BANKING. 

the original pass book, but in the bank which we are describing, 
it is a rule that no change in the heading of an account shall be 
made, except by transfer to a new book, lest unauthorized changes 
should be made, or alleged to have been made, by the employees. 
Such changes are sometimes desirable, for example, in case of a 
woman who has changed her name by marriage, but in this case 
she may continue to be recognized as a depositor by her former 
name. 

The depositors of our bank are of all ages, occupations, re- 
ligions, nationalities, colors and social grades, the children, from ten 
years upwards, are quite as exact and business-like in their transac- 
tions as their seniors, and the habit of carrying on a Savings bank 
account is quite prevalent among the children of all classes. 

As the official with whom the depositor comes first and chiefly 
in contact, we will describe the duties of the receiving teller. 






RECEIVING TELLER. 165 



CHAPTER IV. 
RECEIVING TELLER. 

After the doors of the vault have been opened in the morning 
he takes out the large tin box containing his cash, and closed by 
his own combination lock. Placing the bills in the compartments 
of his drawer according to denominations, so as to be able to give 
change, if necessary, and arranging his tray of silver conveniently, 
he is ready for operation. As has already been said, the depositor 
hands in his pass book, between the leaves of which is the money, 
accompanied by a deposit ticket. The first duty of the teller is to 
count the money. To facilitate this, depositors are requested to 
have their bills neatly laid out facing in one direction, and the 
same denominations together. The teller usually counts the amount 
twice. He then sees that the amount as stated on the ticket is 
correct. He next sees that the depositor has correctly stated the 
number of the account ; then he proceeds to make the entry in 
the pass book on the next vacant line, writing the date, the amount 
in words, and extending the amount in figures into the column 
headed " deposit." Then, with another glance at the ticket, he 
sticks the latter on a spindle, and hands the book to the de- 
positor, again repeating the amount. 

This process is very brief, and detains the depositor less 
than any other, but in many banks it is thought that further en- 
tries should be made before the depositor leaves the bank. In 
many, a different clerk enters the amounts from the pass book 
into the deposit book, which will soon be described, and then 
hands out the book. In others, the pass book is taken direct to 
the ledger, and the amount posted there directly from it. The ob- 
ject of these precautions is, first, to insure accuracy, and, second, 
to check embezzlement on the part of the receiving teller. It is 
always more difficult to prevent embezzlement on the part of a 
receiving agent than of a disbursing agent, because the latter is 
compelled to produce vouchers for all his expenditures, but unless 
guarded in some way the receiver may withhold or destroy the 
evidence of his having received. There are two classes of methods 
employed to prevent this in moneyed institutions ; one is that which 



l66 PRACTICAL BANKING. 

makes another employee cognizant of his doings ; and another, that 
which makes that known to the public. It is manifest that there 
is no absolute security in the former method. If you multiply the 
number of hands through which a transaction passes, you some- 
what diminish the probability of fraud, but there is always the 
possibility of collusion; but collusion with the chance public, whose 
interests are directly opposite, is impossible. Therefore, the writer 
considers that the only security against embezzlement lies in making 
the acts of a receiving agent to some extent public, as the bell 
punch does on the horse-car lines. There may yet be invented a 
method by which the teller will, by pressing certain keys, cause the 
number and amount to be legibly written in a book which shall face 
directly from him and directly towards the depositor, who will be 
requested by a sign to observe whether the correct amount is en- 
tered upon it. 

Only black ink is used or kept at the receiving teller's desk. 
The reason for this will be seen when speaking of the paying tel- 
ler. It is the duty of the receiving teller to explain the regulations 
of the bank, and give all information to persons inquiring with ref- 
erence to opening accounts ; to explain the system of deposit tick- 
ets to those who are not acquainted with it, and,' in case of illiter- 
ate persons, to assist them, or to perform it for them. As the first 
impressions of depositors will be formed from their intercourse 
with him, it is essential that he should be perfectly courteous and 
of even temper. He will frequently meet with depositors who will 
endeavor to defraud him — who will pass in $99, for example, and a 
ticket made out for $ 100, and when told of the error, will pull 
the other $ 1 bill out of their pockets, saying very innocently, " Is 
that so ? I must have counted wrong," hoping that once in a 
thousand times the teller may make the same mistake. 

The receiving teller should be an excellent judge of money, an 
accomplishment which is not so needful for the paying teller. In 
fact, although in business banks the paying teller is the higher of- 
ficer, it would seem as though, in the Savings bank, the receiving 
teller's position were the most important. During the day the re- 
ceiving teller may be called upon to supply funds to other depart- 
ments of the bank. The paying teller regularly keeps his cash filled 
from that of the receiving teller. He draws this in even amounts, 
making requisition for so many thousand dollars in such denomina- 
tions ; therefore, when not otherwise occupied, the receiving teller 
should package up his bills with paper strips properly marked. An 
excellent rule for this is always to put 50 pieces in one package, 
so that a package of $2 bills is known to contain $100, and a pack- 
age of S 5 bills $250, etc. If the receipts are largely exceeding the 
expenditures, or, as it is frequently expressed, " the bank is running 
ahead," the Treasurer may make requisition in a similar manner for 



RECEIVING TELLER. 167 

a part of the receiving teller's funds to deposit in bank. Checks, 
drafts, money orders, and similar documents are by this bank freely 
taken on deposit and credited as cash, but with a particular mark 
which indicates the nature of the funds, and nothing is ever paid 
against such deposits until they have been actually collected. 
Some of the more conservative banks, probably from force of habit, 
rather than otherwise, refuse altogether to receive checks on deposit, 
but as the irresistible tendency of the age is to make all payments 
of any moment through the agency of banks, the rule will ulti- 
mately prevail that checks are prima facie cash. Towards the 
close of the business day, or whenever he has leisure, the receiving 
teller gets ready the tickets representing the transactions of the 
day, in order to have them written up in his book called the " De- 
posit Book." This book simply contains number of account and 
amount of deposit. . . . . . . As we have remarked, it may 

very properly be written up from the pass books before they leave 
the bank, especially if the business is sufficiently voluminous to 
give the receiving teller an assistant who can attend to this and 
also to the signature book. 

For convenience, the tickets are frequently assorted, proximately 
into numerical order, before writing them up. The only advantage 
in this is that it facilitates searching for error, if any, in the next 
day's " Bookkeeper's proof." There are, on the other hand, some 
advantages in entering the tickets in the exact order in which they 
were received, because, sometimes, in the case of dispute, this enables 
us to find the names of the depositors who were standing near at the 
time the questioned deposit was made, and also enables us to ascertain, 
proximately, the hour of the day when said transaction took place. 
The receiving teller is required, by an inflexible rule, to turn over 
to the Treasurer, before three o'clock, all checks, drafts, or other 
cash items, not actually money or currency, so that the cash bal- 
ance carried over night by the teller is dona fide cash, and available 
for payments. The liberty of holding checks over night, or memo- 
randa, in place of cash, may very easily lead to a fictitious balance 
covering a real shortage. The checks received are entered in a 
special book, which gives the name of the bank, the name of the 
maker, the name of the depositor from whom received, and the 
amount. Shortly before three o'clock the janitor goes to the desks 
of the various tellers, and asks them for their checks and check 
lists. He counts the items received from each one, and brings 
them, with their contents, to the Treasurer, who receipts in the 
margin of the check-list book. Now the day's work is over, and it 
is the teller's duty to "balance his cash." His deposit book is fully 
written up and footed. His transactions with other departments of 
the bank have been noted by him as they occurred, and are 
vouched for by receipts taken and given. He therefore has all the 



l68 PRACTICAL BANKING. 

elements of a balance, except the verification of the amount on 
hand. He counts, first, his packages of bills, assuming the contents 
of the packages in themselves to be correct ; next his loose bills, 
and last his coin. He is now prepared to make up and prove his 
report to the Secretary. This contains three columns — "debits," 
"credits," and "cash on hand." 

In the debit column is entered, first, the amount in his hands at 
the beginning of the day; second the amount received from de- 
positors, being the total of the deposit book. He also states, as a 
matter of statistics, the number of depositors, and also the number 
of accounts opened. 

Then follow receipts from other sources, either from the treas- 
urer or from the other tellers, but this is exceptional, for the re- 
ceiving teller, as such, is constantly parting with his money inside 
of the bank, and has no occasion to receive from others. It might 
have been mentioned, that in our bank, more as a matter of con- 
venience than otherwise, expense vouchers, unless paid by check, 
are paid by the receiving teller from his cash, after receiving the 
approval of the treasurer or secretary. It is considered that there 
is an economy of labor in thus relieving the receiving teller of 
part of his money, making so much less for the paying teller to 
recount. 

On the credit side of the teller's report is, first, " amounts paid to 
depositors," but unless he has acted during the day as paying teller, 
the receiving teller will have nothing to record here. Next come 
amounts paid to the treasurer. This will embrace the checks turned 
over by him, the currency turned over to be deposited, expense 
vouchers paid on the approval of the treasurer or secretary. In the 
two former cases, he has a receipt on the margin of his check list. 
In the latter case, he holds the authorization on the voucher. Next 
come payments to other tellers. This is normally, of course, 
to the paying teller. The last item of credit, which is balance 
on hand, is not inserted until the cash has been counted. The 
results of the count are written in the last column under the 
heads "Packaged bills," "loose bills," "coin." Then the aggregate 
of these is placed opposite the words "actual cash on hand." Now 
this may not be the correct amount which should be on hand. If 
in excess, the cash is said to be "over," if deficient, it is said to 
be "short." 

A line is provided for each of these contingencies, and if, after 
thorough search, the cash is " short," the amount of deficiency is 
entered on the proper line, and added to the actual cash on hand, 
the result being carried into the credit column, last line. If the 
cash be "over," the amount of excess is similarly entered, but sub- 
tracted. The amounts of the debit and credit columns should now 
be equal. This report, signed by the teller, is handed to the sec- 



RECEIVING TELLER. 169 

retary, who extracts from it the information necessary for his books, 
which he will hereafter test, and marks it " examined and entered, 

secretary," and places it on file. The teller begins his report 

for the following morning, with the balance on hand, as corrected. 
During the following day, unless he succeeds in finding the error, 
he is required, in case of an "over," to charge himself by ticket, 
approved by the secretary, with the amount, placing it to the credit 
of an account called "excess account," from which it may ulti- 
mately be transferred to the credit of the rightful owner when 
ascertained. In case of a "short," he is charged in an account 
called his "deficiency account," and has ultimately to refund the 
amount to the bank. 

Besides the daily report of all transactions, the teller makes a 
monthly report of his transactions with depositors alone, for more 
convenient examination by the auditing committee. 



1 70 PRACTICAL BANKING. 



CHAPTER V. 
THE PAYING TELLER. 

It has already been explained, in connection with the receiving 
teller, that the moneys received by him are the principal sources of 
supply to the paying teller, but if the payments at any particular 
time are running heavier than the receipts, recourse must be had to 
depository banks for funds. In this case requisition is made on the 
treasurer, who draws the amount from the nearest bank, and takes 
the paying teller's receipt on the stub of the check book. The 
bank accounts are drawn upon for payments to depositors, also, in 
another way. A depositor frequently prefers to receive his payment 
in a check on some commercial bank, rather than in money, thus 
lessening the risk of loss, and in many cases creating additional evi- 
dence of his transaction. In this case the paying teller sends the 
depositor, after verifying his draft, to the secretary's window, and 
himself hands the draft to the secretary, who gives the check to 
the depositor. On the return of the draft, the paying teller receipts, 
as before, in the margin of the check book. Thus, the receipts of 
the paying teller are, first, from the receiving teller ; second, from 
the treasurer in ' money drawn from the banks ; and, thirdly, in 
checks which are immediately issued. His payments are almost ex- 
clusively to depositors. When, as has already been said, the depos- 
itor presents himself at his window with a request for a certain 
sum of money, the paying teller has to make the following inquiries: 

First. — Is the pass book presented ? 

Second. — Is there sufficient money on the account to pay the draft ? 
In order to ascertain this he requests the bookkeeper, by mention- 
ing the number of the account, to inform him of the present bal- 
ance, or, if there be sufficient time, examines it himself. 

Third. — Is there a properly made out draft for the amount? If 
not, the teller usually makes it out himself. 

Fourth. — Is the signature genuine? To ascertain this, he turns 
to the signature book (the entire series being near him), and, find- 
ing the number of the account, compares the signature of the 
draft held in his hand with that originally written in the book. It 
is very frequently the case that there will be some slight disparity, 



THE PAYING TELLER. 171 

far more frequently than in case of a commercial bank. The last 
withdrawal was perhaps many years ago, and very naturally some 
change may have taken place in the character of the handwriting. 
Any substantial variation, such as writing initials instead of full 
names, or abbreviations instead of initials, he causes to be corrected 
by a re-writing of the name on the back, if the depositor is present 
in person. It is not his duty to refuse payment where the signa- 
ture is not absolutely identical. He must, using the best of his judg- 
ment and discretion, form his opinion as to whether the signature 
is genuine. A by-law of the bank, which has been sustained as rea- 
sonable by the courts of the State, declares that any payment made 
to any person producing the genuine pass book shall be considered 
valid, and shall discharge the bank. A payment without the pass 
book is very exceptional, and is never made without the approval 
of one of the officers of the bank, noted on the draft itself. In 
this case, of course, a perfectly incontestable signature must be pre- 
sented. In the case of persons who did not write, but made a mark 
on the opening of their account, the mark is now made in the pres- 
ence of the teller, and the person is asked the various test ques- 
tions which were asked at that time. If answered correctly, and 
the appearance of the person sufficiently answers the description, 
this, with the presentation of the pass book, is considered sufficient 
evidence to pay on. 

In some of the older Savings banks the signature of the de- 
positor, when coming in person to draw, is not taken. They rely, 
not on comparison of signatures, but on the asking of the so-called 
test questions. This seems to us a very improper way of transact- 
ing business, of which the only advantage has been, in past years, 
the saving of two cents for an internal revenue stamp, now abol- 
ished. The bank retains no voucher for the payment. It is perfectly 
easy, especially' in our crowded tenement houses, for a person who 
has abstracted a pass book, to obtain such information as the names 
of parents, etc., and the writer has no doubt that many cases of 
fraud have occurred in this way, which even the depositors have 
not been aware of. The identification by questions should only be 
employed as a last resort, where comparison of signatures cannot be 
made. 

Fifth. — To whom is the amount payable ? Instead of coming in per- 
son, the depositor frequently gives his draft to another. The printed 
forms given by the bank read " pay to myself, or bearer," and in the 
forms given in the pass book, the word "bearer," is always recommend-^ 
ed to be inserted. Occasionally, a draft is presented, payable to order. 
In this case, of course, identification is necessary, as in a business 
bank. The bank claims the right to decline any such draft, as it 
is no part of its business to verify endorsements, but frequently 
the difficulty is overcome by paying in check to the order of the 



172 PRACTICAL BANKING. 

payee named. Some drafts are presented through the medium of 
business banks, having been deposited for collection. These are 
also usually paid by check. The bank has the right, in case of a 
financial panic, or similar emergency, to demand sixty days' notice 
before making any payments whatever. In this case, it is the duty 
of the paying teller to accept such written notices. 

The paying teller keeps a draft book, precisely corresponding to the 
deposit book already described. His daily report is precisely similar to 
that of the receiving teller, the footing of his draft book being entered 
as a credit, and the statistics of the number of drafts, and num- 
ber of books closed, taking the place of number of deposits and 
number of accounts opened. When an account is closed, the pass 
book is always retained by the bank; therefore, at the close of the 
day, the paying teller should have a pass book for each account 
which has been closed, and his report of the number closed is 
made by counting these pass books. The following morning this 
account is verified by a report from the bookkeepers of the num- 
ber of accounts actually ruled off on the ledger. In case of a lost 
book, an envelope, of the size of the pass book, and marked with 
the number, date, &c, is put in as a substitute or dummy. It is 
the paying teller's business to keep himself supplied with funds, and 
to give timely notice to the treasurer, or to the receiving teller, 
that they may have money ready for him in the morning hours 
when he has leisure to count it. 



THE BOOKKEEPER. 173 



CHAPTER VI. 
THE BOOKKEEPER 



The bookkeeping department of the Savings bank has charge, solely, 
of the accounts with depositors. The general accounts of investments, 
income and expenditure, are a separate system under the direct charge 
of the secretary. The province of the bookkeeping department is to 
keep a classified record of the tellers' transactions, which shall, at any 
moment, indicate the standing of any given depositor with the bank 
and the balance to his credit, at the same time corroborating the 
accuracy of the tellers' figures. The transactions with the depositor 
are : first, deposits ; second, interest ; third, drafts ; fourth, trans- 
fers. The tickets already described as deposit tickets and draft tick- 
ets form the basis of all the bookkeeping operations. The trans- 
fer, which consists in withdrawing from one account and crediting 
the same sum to another, is effected by a double ticket. Half of 
this is of the size and form of a draft ticket, and the other half 
of that of a deposit ticket, and any clerk is authorized to make a 
transfer, being responsible for all the parts of it. He makes the 
entry in both pass books, writes up a description of the transac- 
tion in a third book, called the transfer book, giving the num- 
ber of the account from which, the number of the account 
to which the transfer is made, and its amount, and also the 
date from which it bears interest. The double ticket is placed 
upon a special spindle kept near the transfer book. The book- 
keeping work of one day is always done on the following day. 
The result of the day's business is an accumulation of tickets of 
the three kinds, as already described, and these are stamped with 
the official date, the transfers being divided into their component 
parts. We then have two series, one of debits against depositors, 
and the other of credits in their favor. The first duty of the head 
bookkeeper is to take each series and to divide it according to the 
numbers belonging to the different ledgers. The ledgers of the 
bank contain 5,000 numbers each, in consecutive order, but when 
the majority of the accounts have been closed, several of these are 
consolidated and kept in one volume. Each bookkeeper has certain 
ledgers assigned to him, for the accuracy of which he is responsible. 
One bookkeeper, whose share of the work is the twenty-fifth and 



174 PRACTICAL BANKING. 

twenty-seventh ledgers, receives the tickets, debit and credit, belong- 
ing to accounts contained within those limits. He next makes a 
further arrangement, so as to bring them into exact numerical order, 
which greatly facilitates posting.* It may be briefly described as 
follows : The ledger consists of three columns besides the date : 
debits, credits and balance. After each transaction, and in the same 
line with it appears the resulting balance or amount to the credit 
of the depositor. The posting is done entirely from the tickets in 
the first instance, but only consists in rewriting the balance, plus 
the deposit, or minus the draft, as the case may be. Thus, if the 
bookkeeper has a deposit ticket on John Smith's account for $29.32, 
he turns to the proper page of the ledger, as indicated by the 
number on the ticket, and there he finds that the present balance 

is $ 270 44 

Adding mentally, figure by figure, he writes on the next line 299 76 
which is the new balance produced by the transaction. He also 
writes the date, but does not make any entry in the column de- 
voted to deposits. Each ledger has a book corresponding to it, 
called the "Journal," which might more properly be termed a 
" Proof Book " of that ledger. It is a transcript of all the postings 
each day to accounts in that ledger. In writing up the tickets in 
this book, which is done as soon as the posting is finished, the 
amounts are omitted, only numbers and names being copied. Now 
comes the process of verification. Turning to Mr. Smith's account, 
the verifying bookkeeper (not the one who posted it) infers from 
the two balances that the transaction must have been a deposit 
of $29.32. He therefore writes that amount in the credit column 
of Smith's account, and copies the same into the credit column of 
the Journal. Now it is evident that if there were a mistake either 
in the amount of the entry, or in subtracting instead of add- 
ing, or in computing the balance as changed, the aggregate of 
the entries on this ledger, and the aggregate of the entries of 
the entire day will be incorrect. This aggregate is carried to 
two forms, called respectively, the " Daily Proof of Deposits," and 
the " Daily Proof of Drafts." Opposite " Ledger twenty-five " and 
" Ledger twenty-seven," the bookkeeper enters the amount pcsted 
to each side, as shown by the journal. When the daily proofs have 
been completed by filling up every line, their total is compared with 
the total aggregates derived from the teller's reports, and if there 
is any discrepancy, it indicates some error, either in the teller's 
accounts, or in the balancing of some depositor's account, or in the 
transaction on some depositor's account, or in addition. It is the 
duty of the clerk who last made an error which threw the daily 
proof out of balance to search for the error now existing. When 

* The process employed in posting is fully explained in an article, entitled "Balance 
Posting," in The Bookkeeper, No 51. 



THE BOOKKEEPER. 175 

he has found the present error, and fixed the responsibility for it 
upon one of his colleagues, the latter holds the unenviable appoint- 
ment of searcher, until he again relieves himself of it by detecting 
some other offender. 

A " Monthly Proof " is also made, which involves the total trans- 
actions for the month, and the aggregate balance of each ledger, 
being a summary trial balance ; and there are intermediate " Satur- 
day Proofs," which are not obligatory, but made by the bookkeepers 
for their own convenience. 

We have described one of the most advanced methods for keeping 
accurate accounts with depositors, and one by which it would seem 
almost impossible that any error should escape detection. It in- 
volves two principles which seem to us vital in insuring accuracy. 
First, that where there is a great volume of work to be gone over, 
it should be cut up into such small portions, each separately proved, 
that the area of search for errors is narrowed. Second, that the 
process of verification should be totally different from the process 
verified. A familiar illustration of the latter principle is in the 
process of addition, where, having added upwards, we then add 
downwards, lest the same error occur in the same combination of 
figures. We will now describe one of the primitive methods which 
are still in use in some institutions and which violate these prin- 
ciples. 

The ledger contains columns for drafts only and deposits, none for 
the balance. The posting is done, not from tickets but from the 
tellers' deposit and draft-books. The verification is merely a going 
over the items in the same order, affixing a check-mark if the 
original book and the ledger agree. There is no division of the 
transactions and balances of different ledgers or sections. The only 
thorough proof is in the semi-annual trial-balance, and it is an al- 
most hopeless task to find an error in this, if there is a discrep- 
ancy, as usually happens. Experience has shown that this method 
neither prevents nor detects with certainty, errors in posting. 

The interest, or dividend, is computed semi-annually, and its 
calculation devolves upon the bookkeepers, each for his own 
ledger. The calculations are gone through twice. The first 
operation is entered in a book called " Interest and Balance 

Book, Ledger ." This contains, on the left hand side, the 

numbers of all the open accounts in succession, followed by columns 
for the amount of interest at each half-yearly period, separated by 
other columns for the balance, which will hereafter be explained. 
The so-called " balance column " of the deposit ledgers, greatly fa- 
cilitates the calculation of interest. Making the calculation men- 
tally, figures are put down in the " Interest and Balance Book," op- 
posite the principal, in pencil. When the ledger has been finished 
in this way, the "Interest and Balance Book" is laid aside entirely 



176 PRACTICAL BANKING. 

and the calculations again made, the result being noted in pencil 
on the margin of the account. Thus there are two independent 
calculations of dividend, and jf, upon comparing these two, they are 
found to be identical, it is assumed that the calculation is correct. 
As this work is commenced before the end of the interest period, 
there are changes during its progress, caused by the withdrawal of 
money. These are corrected each day. After the first of January, 
or of July, the amounts penciled on the margin are written with 
red ink in the body of the account, and the resulting balance car- 
ried out, also in red. The " Interest and Balance Book " is added 
up by pages and aggregated by ledgers, so as finally to show the 
total amount of the dividend. It is the duty of the bookkeeper to 
enter in the depositor's pass book, whenever required by him, all 
dividends standing to his credit up to date. This is also done in 
red ink, and it is the invariable rule to foot up and balance his 
pass book at that time, compare its balance with that shown by the 
ledger account, and check off the latter, if correct. The book is 
also similarly balanced whenever the page is full ; thus the daily 
and monthly reports of the bookkeepers verify and control the 
daily and monthly reports of the tellers, the cash department and 
the accounting department each reporting to the secretary, who bal- 
ances one against the other. 

In connection with the signature book the index cards are 
described and exemplified. These are kept in a chest of drawers 
which will contain about 10,000. They are arranged in alpha- 
betical order, the index cards of each day being inserted in their 
appropriate places, and the cards representing closed accounts being 
each day extracted and filed in a separate series, so that the reg- 
ular series contains only the open current accounts. 

Many forms of index books have been and are used — simply 
alphabetical, alphabetical with vowel divisions, and alphabetized 
according to the first three letters. In none of these can the ar- 
rangement ever remain absolutely alphabetical, and there is always 
a considerable space to be gone over to find a certain name, and a 
great chance of missing it. In the card method a certain name can 
occupy but one place, as in a directory, and the dead accounts do 
not have to be gone over in order to find the open ones. 

Little zinc cards indicate the divisions between letters, and be- 
tween combinations of letters, so as to facilitate search. 

We have now considered the principal functions of all the clerks 
of the bank, and have next to describe the duties of its executive 
officers. These are, in the bank under consideration, the president, 
treasurer and secretary. The treasurer and secretary perform, to a 
certain extent, co-ordinate duties. That is, they assist each other, 
and relieve each other when absent. We will describe first the 
duties of 



THE TREASURER. Iff 



CHAPTER VII. 
THE TREASURER. 

This officer is elected by the board of trustees, and holds office at 
their pleasure. He may or may. not be a member of the board, but 
it is customary that he should be. His department is the custody 
and management of the investments of the bank, but, as the senior 
officer present, he exercises a general direction over all departments. 
The cash deposited in banks is principally under his control. He, or 
the secretary acting for him, directs the deposits to be made in dif- 
ferent banks. Checks on the banks are signed by him and by the 
secretary,, and countersigned by the president. He is the proper of- 
ficer to collect interest or rent due the institution, to receive payment 
for obligations which mature, to receive applications from borrowers, 
and to lay before the board of trustees all matters pertaining to 
investments which may require their action. The principal invest- 
ments of the bank, as permitted by law, are — ist, loans on pledge 
of stocks; 2d, stock investments; 3d, mortgage loans. 

The kinds and amount of these various classes of investments 
are guarded by law, which differs in the various States. In the 
New England States loans may be made upon bills receivable 
as security, which is not the case in this State. In some States 
loans may be made upon bank stocks or railroad stocks. 

The First of these classes, loans on pledge of stocks, are consid- 
ered as a temporary investment. The loan cannot exceed par, and 
there must also be a margin of ten per cent. These loans are 
made upon the sole discretion of the Treasurer, as it would be 
impracticable, in case of a loan from day to day, to await the ac- 
tion of the board at its monthly meeting. The borrower deposits 
the securities, the treasurer is responsible for seeing that they are 
genuine and that they are sufficient, and for their custody. He 
takes from the borrower a voucher, and also a note, which are at 
first embodied in one document, afterwards separated. 

The raising and lowering of the rate on such loans is also at his 
discretion, and if the loan should not be paid, principal or interest, 
when due and demanded, it is his duty to sell the stocks pledged 
as collateral security, as prescribed in the note, and to account 
properly for the proceeds. It is also his duty, in case of the de- 



I78 PRACTICAL BANKING. 

preciation of the security below the legal margin, to make a call 
for a sufficient part of the loan to bring it within the margin. 

Second. — Stock investments. These are usually voted by the board, 
but the practical business of buying and selling is effected by the 
treasurer. The board usually authorizes a purchase at not exceeding 
a certain price, or a sale at not below a certain price, and it is the 
duty of the treasurer, of course, to obtain the most advantageous 
terms possible for the bank, and his contract, even if it should be 
contrary to the vote of the board, would bind the institution. 
These securities are frequently of the class known as coupon bonds, 
where each maturing amount of interest is represented by a small 
promissory note attached to the margin of the bond. These bonds 
and their coupons being payable to bearer, there is greater danger 
in case of theft than from registered securities. The treasurer is, 
therefore, usually instructed to convert any coupon bonds, which 
may be purchased, into registered. As an expert in the money mar- 
ket, the treasurer is expected to submit to the board at its meet- 
ings all desired information as to what appear to be the most profit- 
able investments. When the interest on the stock investment ma- 
tures, the treasurer attends to its collection through the regular 
channels, referring to the register of interest due, kept by the sec- 
retary. 

The law of the State of New York permits Savings banks to in- 
vest only in the following stocks and bonds: 1, United States 
bonds, including District of Columbia 3.65 's ; 2, New York State 
bonds ; 3, bonds of any State in the Union which has not during 
ten previous years defaulted on principal or interest; 4, bonds (if 
issued in pursuance of a State law) of any city, county, town or 
village in the State; 5, any interest-bearing obligations of the city 
or county in which the bank is situated. In loaning on collateral 
security, the banks are restricted to the same classes of bonds. 

Third. — Mortgages. A person desiring to borrow from the bank 
upon his mortgage on real estate, fills out the application, which 
contains spaces for a full description of the property and other in- 
formation concerning the proposed loan. This is, in the first in- 
stance, investigated by the treasurer, and in a great many cases de- 
clined by him at once. He is understood, by custom, to have a 
veto upon such applications as seem* out of the question. If the 
loan appears advantageous, and within the limits prescribed by law, 
the treasurer submits it, with others, in a list at the next meeting 
of the board ; a printed copy of the list, giving a brief description 
of the security in each case, being laid before each member. If 
the loan is accepted, and the application forwarded to the attorney 
to whom the applicant is then referred, and the title is, by the 
latter, pronounced good, the treasurer draws the bank's check in 
favor of the attorney for the amount of the loan. He will receive 



THE TREASURER. 1 79 

from the attorney the application, with the receipt of the borrower 
endorsed thereon. Also the bond, the insurance policy, the mort- 
gage, when it has returned from the office of public record, and the 
abstract of title when it has been copied. It is his duty to exam- 
ine each of these documents, to see that the correct amount has 
been paid upon the voucher, to see that the bond is in accordance 
with the vote of the board, that the insurance policy is in one of 
the companies selected by the bank, and made payable to the bank 
as mortgagee, that the mortgage describes the property correctly, and 
that the abstract is properly certified to by the attorney. He fur- 
thermore sees that the documents are appropriately filed under the 
serial number of the mortgage. 

All the documents, except the application and abstract, are kept 
in a single envelope, headed with the number of the loan, and they 
retain this number so long as they are the property of the bank. 
The application is filed as a cash voucher, and the abstracts, which 
are somewhat bulk)', are kept in a separate series. Semi-annually, 
on the first days of May and November, it is the duty of the treas- 
urer to collect from the mortgagors the interest on their mortgages. 
He sends to each mortgagor, about twenty days previous to those dates, 
a statement of the amount of interest due, the computations for 
which are made and verified by the secretary. This statement is 
so arranged as to constitute, when signed and returned by the mort- 
gagor, a letter of transmission accompanying the payment to the 
treasurer. These statements are required to be signed, even when 
the party pays in person, as evidence of the correctness of the 
amount paid. In return, the treasurer gives a receipt. In the ma- 
jority of cases the payment of interest on mortgages is made by 
check on some bank in favor of the institution. If it is made in 
money, a statement is handed with the money to one of the tellers, 
who receipts therefor by writing his initials after the words " Re- 
ceived by," and returns the statement. 

The secretary debits the teller and credits the treasurer. It is the 
theory of the bank that every document representing the payment 
of money in either direction should be doubly signed, by the party 
or bank official giving, and also by the one receiving it. 

Interest on loans, it might have been stated, is collected in a 
precisely similar manner. If a mortgage becomes in default of inter- 
est or principal, it is the duty of the treasurer, after applying all 
other means, to place the mortgage in the hands of the attorney for 
foreclosure, and upon the conclusion of the action, to collect and 
account for the proceeds. He also receives money in partial pay- 
ment of mortgages, usually where the same arc over-due, and running 
by mutual consent. In this case, he requires a statement of the 
general form, and gives a receipt. 

Besides these classes of regular current investments, the bank 



i8o 



PRACTICAL BANKING. 



may, in certain cases, invest in real estate. These cases are the 
following : 

ist. A building for its own use; but, as it would be unprofitable to 
confine the building to the single story required for bank use, it is 
allowed to add portions thereto for the purpose of deriving revenue 
from renting. 2d. Where mortgages are foreclosed, it is frequently 
necessary for the bank to bid at the sale in order to protect 
itself, and in this manner it may become the buyer. When the 
fee of a piece of real estate has been thus acquired by the institu- 
tion, it then becomes the duty of the treasurer to act as the bank's 
agent in managing the property, to sell it whenever that can advan- 
tageously be done, and to derive the best possible revenue from 
it, so long as it is held. The collection of rents, both from the 
rented portions of the bank's premises, and from foreclosed real 
estate, is effected in a manner analogous to the collection of 
interest. A statement is sent out -as a notice, returned as a 
voucher, and exchanged for a receipt. As to the sale of real 
estate held by the bank, the board usually instructs the treasurer 
as to a limit, above which he is authorized to dispose of it. When 
a bargain is made, he and the purchaser sign in duplicate a contract 
of sale, and the amount paid in hand at the signing of. this 
contract is considered as a liability, and credited to the account 
" contracts of sale." 

The expenditures of the institution are under the supervision of 
the treasurer. In every case, whether the payment be as an invest- 
ment, or as the expense of managing any of its departments, he 
takes from the payee a voucher, and if the actual payment is made 
by a teller, it is countersigned by the latter. 



THE SECRETARY. l8l 



CHAPTER VIII. 

THE SECRETARY. 

The secretary is supposed to be the accounting officer of the 
bank. It is his duty to know, from its books and records, the 
state of the institution in every department, at any time. In prac- 
tice, he performs a large share of the duties just described as be- 
longing properly to the treasurer, he being constituted by the by- 
laws, a vice-treasurer; but his duties will be described as they exist 
in theory, for the secretary alone. His duties may be divided into 
three branches : as correspondent of the bank, as recorder of the 
board of trustees, and as accountant of the bank. All letters should 
be received by him, and answered by him, either immediately, or 
upon reference to the appropriate department. It is the rule of the 
bank that every letter received, however unimportant, be filed in 
its alphabetical place, and that every letter sent, however appar- 
ently unimportant, be copied in the impression book. This refers 
to all correspondence not of a personal character, or all which is 
signed officially. There can be no such thing as an unimportant 
letter, because the fact of every letter being copied enables us to 
say positively, " I did'nt write a letter to so and so on such a 
day, because if I had, it would appear in the copying book." This 
being able to swear to a negative, which can only be done by the 
aid of a rule without exceptions, is, of itself, worth all the labor 
attending the copying of letters. Official letters of the bank are 
written upon its letter sheet, the heading of which, printed in 
copying ink, contains the clauses, " referring to your letter of 

," and " subject ," which enables a correspondence on a 

given subject to be traced through the letter book. Special forms 
of letters often required, are printed, as letter of transmission to at- 
torneys, with check for the mortgage ; letter to depositor, with re- 
mittance on his account; request to depositor to present pass book 
( for the tracing of errors, &c. ) ; circular, explaining to persons at a 
distance how to deposit without coming in person, called the " re- 
mittance circular." Circular with rules as to interest on mortgage, 
&c. This is used to " stir up " delinquents by under-scoring the 
part against which they have transgressed. Notices of meeting of 
board of trustees. 



l82 PRACTICAL BANKING. 

Second.— As recording officer of the board of trustees, the secretary- 
performs the ordinary duties of keeping the journal or minutes, 
and filing and preserving documents. He submits to the board at 
each meeting a report which is confined to the dealings of the bank 
with its depositors, giving all the statistics as to number and amount 
of receipts and payments and averages. 

Third. — The chief duties of the secretary, or those which occupy 
the most of his time, are those which he performs as accountant to 
the bank. Strictly, he has no custody of any values whatever, 
but all records of transfers of values are directly or indirectly made 
by him. Thus, he is an auditor of every department of the bank, 
all of which contribute to him through reports. He keeps person- 
ally, or through assistance, all the general books of the bank, that 
is to say, all the books of the bank except those containing the ac- 
counts with depositors. His daily cash book classifies transactions 
in two ways: ist, as they affect the general standing of the bank in 
its relation with the outside world ; and, 2d, as they affect merely 
the increase and diminution of some one of the departments of its 
cash. These departments arc : — 

1 st. Money in the hands of tellers. 

2d. Funds in the vault in the direct custody of the treasurer. 

3d. Deposits in banks subject to check signed by the president, 
treasurer and secretary. 

These together constitute the total cash account, and the possi- 
ble transactions may be of the following kinds : 

1 st. Money received from the public and paid to one of these 
departments, or, in other words, an increase of the total cash with 
an increase in a department. 

2d. Money paid to the public, and drawn for that purpose from 
one of the departments, or, in other words, decrease of total cash, 
and decrease of department cash. 

3d. A transfer from one department of cash to another, or in- 
crease of one department and decrease of another. 

By means of the inner columns of the cash book, which repre- 
sent transactions with the public, and which, alone, find their way 
to the monthly cash, and the outer columns, which represent the 
various departments spoken of, all the records for a single day are 
made upon a single page. The possible transactions of a single 
day will be shown by an example, in which a page of the daily 
cash book will be shown, together with the reports, documents and 
vouchers which form its basis. It will be seen that every figure 
appearing in the columns of the daily cash has its counterpart in 
two different documents or reports, and that these bear upon and 
corroborate each other. The only exceptions, or apparent exceptions, 
to this, are caused by a transfer of the funds, which are entirely 
in the d.rect custody of the treasurer. 



THE SECRETARY. 1 83 

For example, a transfer from one bank to another, or a transfer 
from the vault to one of the banks. Here there will be no voucher 
on the one side, because the treasurer cannot give a receipt to 
himself, and this is not necessary, being similar to the case where 
a teller merely exchanges money of one denomination for that of 
another, not affecting his total balance. The lines of our specimen 
page of the daily cash book will be numbered, and each document 
relating to it will be lettered, and in our explanation the two sup- 
porting vouchers of each line will be given in succession. 

The intermediate transfers or interchanges between departments 
of the bank, which occupy so large an amount of the soace of 
the daily cash book, do not, as a rule, go beyond its pages. The 
inner columns which we have spoken of as representing the rela- 
tions of the institution to the public, contain all that enters into 
the general books of the bank, and, with the exception of the en- 
tries " deposits received," and " drafts paid," every item in these 
inner columns is supported by a voucher. These form two series, 
called the " general vouchers for receipts " and the " general vouch- 
ers for payments." Each series is numbered consecutively, but the 
vouchers for payments form two series. For the sake of conveni- 
ence, vouchers relating to expense, either of management or of 
the banking premises, are numbered from 1 to 1,000, repeating 
these numbers when the thousand has been reached. The re- 
maining vouchers for payment are numbered from 1,000 upward. 
Upon reaching No. 2,000, the numbers re-commence at 1,001. 
The reason for this is that the series with smaller numbers or ex- 
pense vouchers are subjected to a special analysis in a book called 
the " Expense Book," and it is therefore preferable to keep them 
together. These two series of general vouchers for receipts and 
payments are the basis of all further records. No entries are made 
from book to book, but always from the voucher to the book, the 
fact of such record taking place being noted on the back of the 
voucher. Thus, a voucher for expenditures on real estate other 
than the banking house is recorded in the daily cash book, in the 
monthly cash book, under the heading " real estate," in the real 
estate ledger, under the head of the particular property, and in the 
general ledger, under the account of " real estate." These four en- 
tries are made each direct from the voucher. The letter " D " on 
the back of the voucher indicates that it has been transcribed in 
the daily cash book ; the letter " M " that it has been entered in 
the monthly cash book ; and the folio of the real estate ledger 
and of the general ledger are also noted on the back. These four 
entries must correspond, and any discrepancy between them will be 
detected by the operation of the trial balance. 

The practice of requiring signed vouchers for payments of money 
has long been an established rule of mercantile practice, but, 



184 PRACTICAL BANKING. 

strange to say, where value of some other kind is paid or given, 
and money received, it has not usually been customary to insist 
upon a voucher. In this bank the principle is rigorously carried 
out that in every transaction involving an interchange of values, 
there shall be a corresponding interchange of documentary evidence 
between the parties.* 

As the entire accountability of the bank rests upon these docu- 
ments, so their arrangement in convenient form for examination 
and reference is of importance. The vouchers for each month are 
arranged in two series — the receipts^ and the payments, and each of 
these has a list, the form of which is printed on strong maniHa 
paper. The inside of the list of vouchers for cash payments con- 
tains, first, a certificate from the auditing committee that they have 
examined all the vouchers mentioned in the list below, amounting 
to $ , and have passed the same as correct. The committee 

not only signs this, but one of its members marks, with his initial 
or otherwise, each particular voucher, -in order to prevent its being 
again presented. When the examination is completed, this list 
serves as a wrapper or jacket, within which the vouchers them- 
selves are tied up. On the outside of the wrapper is a printed 
form, giving the amount as classified for posting aggregates to the 
general ledger. The total of this outside list will be the same 
figures as the total of the numerical list verified by the commit- 
tee, but it gives simply the aggregate to be charged to each ledger 
account. For example, the list inside may contain a number of 
vouchers for money loaned on mortgage. The classified list will 
simply state — " Mortgages, $ ." These lists, on the outside of 

the bundles of vouchers constitute what might be called a grand 
voucher, which authorizes the secretary to record the transactions 
in bulk. 

An examiner would not, for the great mass of transactions, re- 
quire any books in order to ascertain the past history of the insti- 
tution since this method has been in practice. He would simply be 
handed a number of bundles of vouchers — two for each month — 
with the authenticated list on the inside of the wrapper and the 
classified list on the outside, and from these he could himself make 
up an authenticated history of all the substantial transactions of the 
bank during the period covered. These are the real records of the 
bank. All the books are simply transcripts in various convenient 
and ingenious forms, in which the order of the vouchers is changed 
for obtaining special results. The vouchers are the history — the 
books are philosophical combinations of, and deductions from, the 
facts. 

The primary vouchers of the deposit department, as already men- 
tioned, are the deposit tickets and draft tickets, but it would be in- 

* See Lecture on Documents as Related to Accounts, published in 7^1? Bookkeeper, No. 58. 



THE SECRETARY. 185 

convenient, from the number of these, to file them with the general 
vouchers. Each teller's daily report is a substitute or grand voucher 
for those of the day in his department, and these might be filed in 
that relation; but as they are stated in the form of an account, 
they would have to be made in duplicate, and therefore, for conve- 
nience, the monthly return is required from each teller as to his de- 
posits and as to his drafts. 

The secretary makes up at the end of the month two combined 
vouchers from these monthly returns. He brings together the total 
amount, and he certifies to its agreement with the aggregate reports 
given independently from the bookkeeper's department, so that these 
two vouchers contain the ultimate condensation of the thousands of 
drafts and deposits which accrue each month. This might be called 
a cumulative voucher of the fourth degree. The primary voucher 
being that signed by the depositor, the secondary voucher being the 
teller's daily report, and the tertiary being the teller's monthly re- 
port. As corroborated by the accounting branch of the deposit de- 
partment, it consists of even more steps. 

The business of the bank has three different units of time — the 
day, the month, and the half-year — and each of these has its his- 
torical record, its counterbalancing proofs, and its final statement of 
results or balance sheet. The daily transactions are brought to a 
focus upon the page of the daily cash book, and are also repeated 
in various forms in special ledgers, namely, the deposit ledger, mort- 
gage ledger, loan ledger, stocks ledger, real estate ledger, rent 
ledger. For information, there is also kept in the daily cash book, 
below the cash entries, a daily statement of profit and loss and a 
daily balance sheet, so that at the close of each day the exact 
status of the bank, as near as can be ascertained, is recorded. 

An accurate account is kept, in this book only, of the interest, to 
the nearest fraction of a cent which is earned on each class of in- 
vestment, and this is added to the accrued interest account daily, 
and also credited the income account. Similarly the accretion of 
rents and any other profits is recorded. On the other hand, the 
exact daily amount is apportioned for payment of salaries, of taxes, 
of dividend as estimated, of general expenses, and for the extinction 
of the premium on bonds as they approach maturity. 

Each of these elements produces its effect on the profit and loss 
or surplus account, and equally on some branch of the resources or 
liabilities, actual or estimated, so that the business of the day re- 
sults in a balance sheet, the cash transactions appearing above, be- 
ing, of course, taken into consideration. 

The balance of each department of the cash, and also of the cash 
as a whole, is also verified daily. The monthly work consists in 
the aggregation, by the means already explained, of all the events 
of the month into two sets of columns, which give the general 



186 PRACTICAL BANKING. 

condition. These totals, when posted to the general ledger, form 
the basis of its trial balance. The trial balance of the general 
ledger is not precisely identical with the balance sheet contained 
in the daily cash under the last day of the month, for this reason: 
The general ledger, in its current or normal state, is kept on the 
basis of cost. No profit or loss, by depreciation or appreciation, is 
recognized until realized by the actual disposition of the proceeds. 
Hence, the trial balance of the general ledger is a balance sheet 
on the cost basis, while the daily balance sheet is on the basis of 
present market values. 

The secretary completes his monthly work by making up, from 
the figures thus obtained, the reports to be submitted to the next 
following meeting of the board of trustees. At the monthly meet- 
ings in June and December, being the last months of the half 
years, it is required by law that the dividends be fixed according 
to the profits earned. It is therefore necessary for an estimate of 
the earnings and expenditures of the half year to be submitted, as 
a basis of this dividend. This can very readily be done, as five- 
sixths, or nearly eleven-twelfths of the period have elapsed. At 
this meeting, therefore, the secretary submits such an estimate, 
showing, as its result, the rate of dividend which can be allowed, 
usually leaving a margin to be added to the surplus. The board 
then votes upon the dividend, and the secretary issues orders to 
the bookkeepers to make the calculations at the prescribed rate. 
At the same meeting the examining committee is appointed, and 
this is the first step in the preparation of the semi-annual official 
reports. It is necessary that every facility be provided for this 
committee to examine in detail, as far as advisable, the exact con- 
dition of the bank. The secretary prepares a balance sheet in 
blank, containing headings and spaces for all the departments, of re- 
sources, of liabilities, and the surplus, with their several values. He 
also prepares numerous blank schedules, each referring to one of 
these departments, and giving the individual units which make it 
up. Thus, under the head of stock investments, Schedule C, for 
instance, would be given the following information : Title of stock 
and by whom issued ; rate of- interest ; year of maturity ; amount at 
par ; cost ; present market rate ; present market value ; interest paid 
to what date ; amount of interest earned but uncollected. 

As the last day of the month approaches, at the close of which 
it is the duty of this committee to make its examination, the sec- 
retary begins to fill in the figures of these schedules, first, of course, 
in those departments in which there is the least chance of a change 
occurring. Thus, if it is not probable that there will be any fur- 
ther purchase or sales of stocks and bonds, the stock schedule can 
be filled up as to all the particulars, except " market rate " and 
1 market value." In order to ascertain the market rate of such se- 



THE SECRETARY. 1 87 

curities, recourse must be had, where possible, to published quota- 
tions or to the opinions of experts. The secretary usually sends, a 
few days beforehand, to several firms of respectable brokers who 
make a specialty of dealing in public investment stocks, a list of the 
kinds of securities held by the bank, giving the title, date of maturity 
and the rate of interest, and requesting a reply in the margin to the 
question, " What would be a fair market value for each of these 

classes of securities at the close of business on the last day of ?" 

These are filled up and returned by the brokers on the last day, for 
the information of the committee. Other departments of resources 
also require corroborative evidence, which it is the duty of the sec- 
retary to procure. As to balances deposited in banks, he requests 
the cashier of each depository bank to certify the balance on de- 
posit at the close of the month to the chairman of the committee 
direct. In case the amount thus certified differs from the amount 
appearing on the check book, it is the duty of the secretary to ex- 
plain and to furnish evidence of the disparity, which usually arises 
from checks issued but not yet presented, and the committee should, 
during the following month, or whenever it can be done, make a 
re-examination of the checks which were outstanding. If there be 
any papers in the mortgage department which the committee is en- 
titled to see, and which are in the hands of the attorney for the 
purpose of foreclosure or otherwise, a certificate of their contents 
must be furnished by the attorney. As to real estate owned by the 
bank, if necessary, a disinterested appraiser, experienced in real estate 
values, should be employed to make a survey and report ; and this 
should also be done in the case of mortgaged property, if there has 
been such depreciation as to make the margin precarious. All of 
these preparations, although part of the committee's work, are, in 
practice, attended to by the secretary in order to lessen the burden 
of labor for the committee. Besides the report of the committee to 
the board of trustees, there is an official report to the superintend- 
ent of the bank department, which is required by law to be made 
semi-annually at the dates mentioned. The body of this report, or 
balance sheet, is verified by the oath of the examining committee, 
and is identical with the balance sheet contained in their report to 
the board of trustees. The report however, is submitted and sworn 
to in its entirety by the president and secretary, and is prepared by 
the secretary from his books. The main report or balance sheet, 
just described, contains, in the blank form furnished by the State 
department, a column headed "resources," and another headed "lia- 
bilities." 

Besides the main report above given there is a summary of cash 
transactions for the half year, or in the December report for the 
whole year, and schedules, marked from A to I. 

The table of cash transactions begins with the balance on hand 



1 88 PRACTICAL BANKING. 

and in banks at the commencement of the period, to which are 
added the receipts, classified according to their sources. Then fol- 
low, on the other side, the payments similarly classified, conclud- 
ing with the balance on hand and in banks at the close of the 
period. Under our system, these aggregates are readily obtained 
from the bundles of cash vouchers for receipts and payments, respec- 
tively, being* in most cases simply an adding together of the six 
monthly totals. In some of the particulars a little analysis is nec- 
essary from the wording of the blank, some items not exactly co- 
inciding with either of the accounts kept in the General Ledger of 
the bank. It is, however, a principle in this institution, that every 
official report must have its figures, in some shape, derived from the 
books of the bank. It is too frequently the custom, in institu- 
tions of this kind, and perhaps of other kinds, that the sworn re- 
ports are made independently of the books, and that there is no 
way of directly tracing the connection between the two. As dupli- 
cate blanks are furnished by the department, in order that the 
bank may retain a copy of its official report, it is the practice 
in some banks to make references, by book and page, on the face 
of the copy retained, which will show precisely how the figures 
are obtained from the books. These schedules are given in the ap- 
pendix. 

Schedule A, No. i, contains a list of mortgages taken during the 
period covered, with the valuation of the property mortgaged as 
security, and serves as a general mortgage account, corroborating 
item i of the resources. 

Schedule A, No. 2, contains a list of mortgages paid off, in whole 
or in part, during the period covered. 

The theory of these two reports is to enable the department to 
ascertain the amount out on mortgage, and the security therefor; 
but to make up such a statement from the schedules of many 
years, would be a very laborious process. It would seem prefer- 
able, that occasionally, say once in three or five years, a special 
report should be called for, giving a full list of the mortgages as 
they then existed, with the location of property, and an appraisal, 
which the department could verify at its leisure. 

Schedule A No. 3, is a special list of those mortgages, the interest 
on which is more than six months in arrears. By the law, in the 
State of New York, any mortgages, on which the interest is not 
more than six months in arrears, are to be taken at their full 
value, and the superintendent has a right, in case of the mort- 
gages comprised in Schedule A, No. 3, to affix a value. It is not 
known that he has in any case made such a valuation. In a pros- 
perous bank, in ordinary times, this schedule should be blank. 

Schedule B is a list of the bonds or stock investments of the 
institution, and its arrangement is commendable. In the case of 



THE SECRETARY. 1 89 

stocks and bonds, a different plan is pursued from the one adopted 
in reference to mortgages. In mortgages, the increase and decrease 
during the period are alone considered. In stocks, the increase 
and decrease are entirely disregarded, and only the final status given. 
This would seem a defect, as there is far more opportunity for 
covering up frauds by exchange, barter, purchase and re-sale of se- 
curities, than mortgages. Every purchase, and every sale of stock 
securities during the period, should be reported, with dates and 
prices. 

Schedule B is recapitulated on a smaller blank for the conveni- 
ence of the department. 

Schedule C is headed " stocks upon which loans are made in 
accordance with section 261," a rather inverted title, as the primary 
object is to give the amount loaned upon stocks. 

Schedule D gives the details of cash ; first, as to that deposited 
in banks and trust companies, not only is the amount on deposit 
stated, but also the capital and surplus of the depositary bank, as 
shown by its last official statement. The reason for demanding this 
information is, that a Savings bank is prohibited from depositing in 
any bank or trust company more than a certain proportion (twenty- 
five per cent. ) of the capital and surplus of the latter. 

Schedule E, No. 1, is intended for those investments which are 
contrary to the present law governing Savings banks. Only in case 
the bank has had such investments before the change of the law, 
which it has not been able to dispose of, can there be anything 
to enter in this schedule. 

Schedule E, No. 2, is devoted to assets other than those enumer- 
ated, and would be very appropriate for miscellaneous and abnor- 
mal resources, but the bank department has included in it also, 
interest earned but uncollected, which is not an abnormal resource, 
but one which must exist in every Savings bank. There must 
always be interest which is earned and not collected, and it would 
therefore have seemed more appropriate to provide a separate 
schedule, under the head of income earned but uncollected, for in- 
terest and rents. Interest is divided into accrued and due, and the 
interest overdue is divided into that which is overdue less than six 
months and more than six months, and, finally the total is divided 
into collectable and uncollectable, and the collectable portion is ex- 
tended into the principal money column. The remainder of the 
blank is for miscellaneous assets, other than income. 

Schedule F contains a classified account of the current expenses 
of the bank for the period, such as salary, taxes, insurance, re- 
pairs, stationery, advertising, &c. The numbering of the schedules, 
which, previous to this point, was regular, now becomes arbitrary, 
as different schedules have been inserted according to the views of 
different officials. 



I90 ■ PRACTICAL BANKING. 

Schedule G contains payments of all kinds not otherwise stated. 
It is difficult to see why there should not have been a similar 
schedule of receipts of all kinds not otherwise stated, or a schedule 
of both. 

In Schedule H we again return to resources. This contains a de- 
scription of all real estate owned by the bank, whether for banking- 
purposes or purchased under foreclosure sale, giving the location, 
how acquired, when acquired, original cost, present appraised value, 
amount of income derived during the period, amount of expendi- 
tures on it during the period. Only one of these columns demands 
special remark — the one giving the cost. There is a difference of 
opinion as to what constitutes the cost of a piece of property 
bought in at foreclosure sale for less than the face of the mort- 
gage, and other charges. 

First. — It is the usual way to consider that the entire amount of 
the mortgage, interest, taxes, legal costs — that is to say, the entire 
cost of the mortgage investment is also the cost of the real estate. 
For example, 

The face of the mortgage is $ 10,000. 

The interest is 600 . 

The bank has paid taxes 230. 

Insurance 42 . 

And cost of suit 325 . 

$11,197. 

Now, under the present view, this $11,197 would be considered 
the cost of the real estate bid in, regardless of what the bidding 
price was, and regardless of what it was really worth. But, suppose 
the property is offered at public sale, and the bank bids $9,000, no 
one offering more, then, 

Seco7id. — I hold to the opinion that the cost or purchase price of 
this piece of real estate is not $11,197, but $9,000. It is true that 
the entire investment was $11,197, but what have we done? We 
have taken, in part satisfaction of our claim, a house worth $9,000, 
and for which no one else has bid more. The remaining $2,197 
is not wiped out. We have a deficiency judgment for it against 
the bondsman. If this proves worthless, of course we lose the 
$2,197; but that is not to be assumed prima facie. Suppose 
another person had bid $9,000, and we, thinking that the full price, 
had let it go, would he, the purchaser, consider the property worth 
any more than $9,000? He does not know of our claim; $9,000 
represents to him the entire cost. We, on the other hand would 
have still the deficiency judgment for $2,197. Possibly this is 
worthless. If so, it is our loss ; but the loss is on the bond, not 
on the real estate. When we buy in the property we happen ac- 
cidentally to be the purchaser and, at the same time, the judgment 



THE SECRETARY. I9I 

creditor ; but this should not merge in one two entirely different 
transactions. Suppose, after buying the property for $9,000, we sell 
it for $ 10,000. This gain of $1,000 does not lessen our claim on 
the deficiency judgment. If the debtor should be, or should become, 
solvent, we can still collect of him the full amount. The rise of 
$1,000 is our gain. But how can it be a gain if the cost was 
$11,197? I am aware that in this opinion I am nearly single- 
handed against all parties and current opinion, but believe that my 
view is strictly correct. 

Schedule I is a miscellaneous one, and very crudely constructed. 
Before the statement of cash transactions was precribed, Schedule I 
contained questions eliciting much of the information which is now 
contained in that statement. Therefore, its present contents are, to 
some extent, a repetition of what has already been given in the 
statement of cash transactions, and to some extent contains matter 
which more properly belonged there. All statistics which relate to 
financial values should be grouped either under the resources or the 
liabilities, or the receipts, or the payments, not in a miscellaneous 
schedule which contains such items as the number of trustees and 
the number who have attended each meeting. In this schedule oc- 
curs the question, " Date of taking last abstract of balances due de- 
positors as shown by depositors' ledgers," and "What was the 
amount of the discrepancy, if any, between the aggregate of such 
balances and the amount shown by the general ledger due to de- 
positors at the same date ? " 

The law requires, what a prudent bank would of its own accord 
prescribe, that an accurate list or balance of amounts due deposit- 
ors shall be taken at least once in six months, and that the dis- 
crepancies, if any, found on that occasion be reported to the super- 
intendent. The process of this balance might have been described 
under the bookkeeper's department. It has there been stated that 
the balance due each depositor is proved whenever there is a 
change, so that, substantially, the ledgers are always in a state of 
proved accuracy as to individual balances. We have also seen that 
each month the aggregate amount due the depositors of each ledger 
is ascertained, end that by aggregating these the grand total, as shown 
by the general ledger, is corroborated. These processes continue 
during the half year, and the results of monthly reports are entered 
in a book kept by the secretary called Ledger Balances. At the end 
of six months there is an additional column for dividend, and, in- 
cluding this, the balance due depositors is again ascertained, and 
this is the basis of the semi-annual trial balance required by law. 
Each of the ledgers, from one to thirty, ought to show a certain 
amount of aggregate balances, and this list, added together in the 
book called Ledger Balances, equals the amount reported to the 
bank department as due depositors on the 1st day of January or 



192 • PRACTICAL BANKING. 

July. Each bookkeeper transcribes into the book already mentioned 
under the name of " interest and balance book," opposite the proper 
number, the amount owing to each depositor. Having done this, 
and carefully compared it, he adds the entire amount together, and, 
if perfectly correct in every respect, the sum total should equal the 
corresponding line in the ledger balances. If it does not so equal, 
there is probably an error, either in transcribing some amount, or 
in adding up some page, or in adding the interest to the previous 
balance. It might be mentioned that the work is facilitated by 
writing in red ink, in the balance column, the result produced by 
crediting the dividend. It has been found by experience that any 
partial method of examination, in order to find the reason of any 
discrepancy, is ineffectual. Such methods we call " stabbing." We 
have an exhaustive method, which we call "taking off drafts and de- 
posits." It consists in taking the original tickets of all the transac- 
tions of six months, and assorting them in a mass, numerically, so 
that, for example, in ledger 27, the transactions of six months will 
be represented by two series of tickets, the deposit tickets begin- 
ning with the deposits on account No. 135,001, and ending with 
the deposits on account No. 140,000. The draft tickets form a 
separate series, beginning and ending in the same way. When this 
assorting is completed, we copy off each of these series of tickets 
by amounts only, but we do this in sections. Suppose the first 
page of the interest and balance book comprises Nos. 135,001 to 
135,050, then we write down all the deposits in the same compass, 
and take their total. We write down all the drafts in the same 
compass, and take their total, Then we form an equation thus : 
Old balance + deposits + dividend=drafts -f- new balance. Or, in 
another form : Old balance + deposits + interest — drafts=new 
balance. If this equation holds good, the first pige is considered 
correct, or proved. Then we go on to the second page, and so on. 
Probably we discover by this process the whole or a part of the 
discrepancy by the time we reach the end. If not, we put together 
the totals ; that is, we arrange the page footings in tabular form in 
five columns, so that by footing these columns we obtain of the 
entire ledger the same equation : Old balance + deposits -f- inter- 
est=drafts -(- new balance. This ought to prove. If it does not, 
some one of the pages which we believed to be in proof has really 
been out of balance. Having brought this final equation to an ad- 
justment, our next step is to ascertain in which column the error 
is. We have an independent statement of every one of these col- 
umns, and we make the comparison of each in succession. The 
old balance we have before us in the same book — the interest like- 
wise, and the new balance. If one of the two former of these is 
incorrect, the defect is soon remedied, but when these two columns 
have been corrected, we still have the drafts and the deposits. 



THE SECRETARY. 1 93 

To find the total drafts of six months, add together the drafts of 
January, February, March, April, May, and June successively, and 
similarly with the deposits. Now, this gives us a test of the second 
and fourth columns of our final equation. If, at last, we find that 
the error is in one of these, we first go back, comparing the tick- 
ets with our transcription of them. If this fails to discover the 
error, it may be necessary to re-assort the delinquent tickets, either 
draft or deposit, by months, and ascertain in which month the 
error occurs. Having located it in the month, it may be necessary 
to re-assort that month by days, and locate it by the tickets. But 
ultimately we must find it. The process is absolutely exhaustive. 

The second question propounded by the bank department as to 
the balance is, what is the amount of the discrepancy ? One of the 
New York banks constantly reports at present, " Old discrepancy prior 
to April 13, 1874, $2,386.08." For some years this has not varied. The 
following is its history : Up to the date mentioned there had been 
no accurate balances of the depositors' ledgers. While the bank 
was small, the importance of searching out and correcting the 
minute errors which then existed was not understood. The first 
trial balance taken was about $50 out of the way. The accounts 
were only a few hundred in number. It would have been an easy 
matter to analyze the work up to that point and to have discov- 
ered the error, but it was thought near enough. These two words, 
" near enough," are the most dangerous that can be used in book- 
keeping, for an error which is apparently near enough may be the 
resultant of opposing errors each of large extent, and one of which 
will threaten danger. Presumably, the labor of finding this first dif- 
ference was postponed until a more convenient season. As the 
work increased, this search, which was the business of nobody in 
particular, became less and less likely to be effected, and the next 
year rolled around, and it came time for another trial balance. 
Now the number of depositors had largely increased, and it was 
said, "Never mind the old error; it will probably turn up this 
time." Nobody knows whether it turned up or not, because the 
error this time was over $ 100 on the opposite side, so out of the 
mud we had got into the quicksand. Each year the same trial at 
a balance was made, and with the same lack of success, ending 
with the same motto which was at first inscribed on our banner, 
"Near Enough." Near enough one time meant $6,000 until a few 
months later it was found that a little error of $13,000 in a semi- 
annual dividend had been made, which brought the " near enough " 
to $7,000 the other way. Some radical spirit among the book- 
keepers became dissatisfied with this erroneous discrepancy, and be- 
gan to think that it was better to undertake a great deal more 
labor, and to know at least that the current work of the bank was 
proceeding correctly; so, on the 13th of April, 1874, they divided 



194 PRACTICAL BANKING. 

the ledgers among themselves, and commenced, in an imperfect 
way, to keep each ledger in balance as an independent equation, 
and to actually search out all the errors in each ledger. It is true 
this was somewhat like the proverbial needle and haystack, but the 
difference was that the haystack was very much smaller. Gradually 
the system has been improved in simplicity and effectiveness until 
the present time, and the old discrepancy of $2,386.08 is the relic 
of the old errors. This may some time all be found, but the prob- 
abilities are that it will not. The present Secretary began, a few 
years ago, a process of bridging over the period of chaos by be- 
ginning to do what was not done twenty years ago, namely, to take 
an accurate trial balance of the work at the end of each half- 
year. Three of the years have thus been completed, but the pro- 
cess of going through the remaining fourteen years involves colos- 
sal labor. Possibly it may at some time be thought worth while 
to employ a special corps of clerks to do this. As an illustration 
of how deceptive the " near enough " principle is, it may be men- 
tioned that at one time our discrepancy was only $700 — apparently. 
The discrepancy account had, by successive finds, worked down to 
this point, when, by pure accident, it was discovered that the 
amount in the general ledger, which had been considered as the 
standard, or norm, was itself $ 10,000 away from the truth by a sin- 
gle error. This startling discovery was enough to unsettle the 
minds of the most fanatical adherent of the " near enough " theory. 
A search was made through the mouldering pass-books, thousands 
and thousands of which, having been closed and surrendered, were 
lying in numerical order in the cellar. Luckily they had been pre- 
served. By comparing them with the ledger it was found that 
about $8,000 of principal stood open on the ledgers of the bank, 
when, in reality, the accounts had been entirely closed. A dishon- 
est employee might, by discovering these and compromising with 
the depositor, have abstracted a large amount, especially as the ac- 
crued interest on the same amounted to over $6,000. At one 
stroke, by the closing of these accounts, there was a gain to the 
surplus of the bank of more than $ 14,000, and the effect upon the 
discrepancy account was to bring it to 2,300 and odd dollars. 
Very little has been found since that time, but it is considered a 
matter of duty to report the amount every six months to the bank 
department. It has often been suggested, Why not close this ac- 
count into profit and loss? The answer is that an error might be 
discovered the very next day, which would require its re-opening, 
and that it is better to leave the account open forever if neces- 
sary, or until the last cent of discrepancy of those fourteen years 
has been discovered. This story of error has been related, because 
history has so often repeated itself on this point. The writer has 
been surprised to find how many large institutions have had almost 



THE SECRETARY. 1 95, 

the identical experience, and the old, old story of beginning busi- 
ness with a small force, and with a system which was not expan- 
sive, and which was soon outgrown. The Bowery Savings Bank, 
which is the largest in America, perhaps in the world, only sub- 
divided its work and took a new departure with a large discrep- 
ancy within five years; and at this moment the Bleecker Street 
Savings Bank is still operating, on its initial or fundamental bal- 
ance, for a new system ; a balance taken in the air, so to speak, 
as a point of departure. A clerk in' an old Savings bank in Salem, 
Mass., was relating to the writer only a few weeks ago the history 
of the bookkeeping of his bank, which was almost word for word 
like the one given above, even to the disinterring of the old pass- 
books from the cellar, with this further incident that in the Salem 
case the pass-books were unclassified and lay in mouldy heaps. This 
embellishment was lacking in the case cited above. 



196 PRACTICAL BANKING. 



CHAPTER IX. 

THE PRESIDENT. 

In many Savings banks the duties which have been described as 
shared between the treasurer and secretary, are divided between the 
president and treasurer, or the president and secretary. The pre- 
sident is usually not a salaried officer, and in that case his duties 
are practically confined to presiding at the monthly meetings. He 
is rather president of the board of trustees than president of the 
bank. In other institutions he receives a small salary, attends 
daily, but not during the entire session, and has no routine duties, 
but superintends and advises in all departments. He is required by 
the by-laws to execute all deeds, releases, satisfactions, or other 
documents in the nature of a conveyance of real estate, and to 
countersign all checks. Although it may seem wasteful to employ 
an officer of a corporation with no stated routine duties, yet where 
the trust is large the writer thinks emphatically that this should be 
the case — that the duties of the highest officer should be entirely 
discretionary with himself, and that he should possess such an inti- 
mate and also such a broad knowledge of the business that he him- 
self is the best judge of what department needs his personal atten- 
tion, and that he himself can be held responsible for everything. 



THE BOARD OF TRUSTEES. 1 97 



CHAPTER X. 
THE BOARD OP TRUSTEES. 

This body is the ultimate governing power of the bank. It is 
the final jurisdiction, from which there is no appeal within the 
bank, and in fact there is no appeal whatever, for the only remedy 
in case of wrong-doing is to punish the trustees personally, and to 
remove them, which, however, would not act as a reversal of their 
decisions. They are supreme, and responsible only to the people of 
the State, through their representative, the Superintendent of the 
Banking Department. The board of trustees consists of not less 
than fifteen nor more than twenty members. Under the State law, 
not less than thirteen is requisite. The board elects to fill its own 
vacancies occurring by death, resignation, or neglect of duty for 
six months, and its actions in this respect cannot be questioned 
if the record is clear. 

Seven members of the board constitute a quorum, provided the 
president, or one of the vice-presidents, be among the number. The 
entire government of the affairs of the bank, from the most minute 
detail up, is vested in the board of trustees. The powers, which 
practically are exercised by the executive officers of the bank dur- 
ing the intervals between the sessions of the board, are those dele- 
gated to them by the board, as expressed in its by-laws. Some of 
the duties cannot be delegated. A loan on mortgage can only be 
made upon vote of the board, based upon the report of the com- 
mittee. The rate of dividend can only be declared by the board at 
its annual or semi-annual meeting, and this vote must be recorded 
by ayes and noes. If a dividend exceeding the accumulated earn- 
ings should be declared, it would stand as regards each individual 
depositor, but the trustees voting for it would be perso lally liable 
for the amount of the excess. The election of officers and commit- 
tees is another duty which must be exercised by the board itself. 
With these exceptions, the government of the bank is discretionary 
as to means with the board of trustees, and they may delegate so 
much of their powers as they desire. It becomes impracticable to 
do otherwise as regards the routine business of the bank, and the 
transactions in those investments which are of a less permanent 
character than upon real estate security. Even the restriction as to 



198 PRACTICAL BANKING. 

loans on mortgage is found a serious inconvenience, and is believed 
to be systematically disregarded by many banks. Applications are 
acted upon after examination by a committee, but without previous 
submission to the board. The more important of the committees 
usually established in a Savings bank are Finance Committee, the 
Attending Committee, the Auditing Committee, and the Examining 
Committee. 

The Finance Committee is intermediate between the board of trus- 
tees and the treasurer, and considers and acts upon the more import- 
ant questions which arise in his department. 

The Auditing Committee may be regarded as bearing a similar rela- 
tion to the secretary. It is required by the by-laws to examine and 
audit the vouchers for all payments. Also to count the cash on hand 
at least once a month. The process of auditing the vouchers has been 
described under the secretary's duties. It may be further said, that 
in so far as the audit is intended as a check upon embezzlement, 
it should comprise also the cash receipts as well as payments. It 
should be ascertained whether the receipts have all been fully ac- 
counted for. Like all other amateur committees of examination, the 
proceedings of this committee are almost inevitably perfunctory. 
They are very seldom thorough — very seldom go to the bottom of 
the figures which they are supposed to examine. Having ascertained 
that a certain amount of payment is supported by the proper 
vouchers, they very seldom even enquire whether this is the entire 
amount of payment to be accounted for, which simple omission 
completely destroys all utility of the examination. The officer whose 
work they are supervising has only to withhold all questionable or 
improper vouchers from their examination. Such committees seldom 
take the time necessary for the proper performance of their duties, 
and seldom possess the ability. They ought, in justice to them- 
selves and to their trust, to employ skilled assistants to point out, 
at least, the way in which to do their work more thoroughly. 

The duty of the Examining Committee is to ascertain the precise 
condition of the bank at the close of the semi-annual period. An idea 
of the manner of performance of their duties may* be gathered from 
the description of the schedules furnished them by the secretary 
as a basis of their examination. One of their number makes up 
from the figures thus ascertained a report to the board, analyzing 
the history, results, and prospects of the institution. This commit- 
tee is also required by law to endorse upon the official report 
made to the Bank Department their affidavit as to its correctness, 
so far as the report proper or balance sheet goes. 

The Attending Committee. In the infancy of Savings banks, when 
they were looked upon as charitable institutions, the members of the 
board of trustees attended in rotation at the bank ; but what they did 
beyond lending a general air of elderly benevolence has never been 



THE BOARD OF TRUSTEES. 1 99 

ascertained. Where this custom is kept up, they almost invariably sign 
their names in a large book, and this is probably the most important 
of their functions. Such attendance inevitably degenerates into a 
farce. In this institution it has been abandoned. All members of 
the board of trustees are welcome at all times, and even if they 
were not welcome, it would be their duty to visit the bank, and 
keep themselves informed. This many of them do, and the more 
irregular this attendance is in point of time, probably the better 
it is. 



'200 . PRACTICAL BANKING. 



CHAPTER XI. 
THE ATTORNEY. 

The peculiarity of Anglo-Saxon law with regard to its arbitrary- 
distinctions between real and personal property is well illustrated 
by the fact that a Savings bank can safely effect investments of 
millions in securities and valuables with only a layman's knowl- 
edge, while it is impracticable or inadvisable to stir in the most 
unimportant transaction which regards real estate, without a lawyer 
at one's elbow. Yet the property in the latter case is more readily 
identified than any other in the world. It is impossible to coun- 
terfeit it ; it is the most visible, most tangible, most impossible to 
secrete, and most exposed to the public eye of all property. Noth- 
ing but the barbarous state of our laws, borrowed from a form of 
government whose policy it is, of set purpose, to prevent transfers 
and diffusion of titles in land, has caused this. 

The attorney of a Savings bank is not usually a salaried officer. The 
greater part of his services consists in the examination of titles to real 
estate, upon which it is proposed to loan on bond and mortgage. 
The law prescribes that the charges for such services shall be paid 
by the borrower. It would in many cases be to the interest of the 
bank to pay them voluntarily, in order to secure a desirable in- 
vestment or a greater rate of interest, but the law, as construed 
by most Savings banks, prevents this. 

When an application for loan on bond and mortgage has been 
accepted by the board of trustees, the fact of this acceptance is 
endorsed upon it by the secretary and the paper forwarded to the 
attorney. The proposed borrower is notified to wait upon the at- 
torney with the papers which he may have in support of his title. 
The amount charged by the attorney for his services in making 
the examination are on a scale fixed by the customs of the pro- 
fession, but subject to varying through negotiation. Frequently the 
borrower, especially of late years, goes to the attorney and says, 
" I will take this money of your institution provided you do not 
charge me more, than such a sum." Generally the disbursements, 
that is, amounts paid to public officials for searches, constitute one 
portion of the charge, and the fee of the attorney for the labor 
and responsibility of certificate form another portion, and this latter 



THE ATTORNEY. 201 

is a fixed or sliding percentage upon the amount of loan. In 
many cases the labor is very slight, as there may be an abstract 
giving the chain of title to a very recent date, which has only to 
be copied. Still there is a responsibility on the part of the attor- 
ney for its correctness, and theoretically, at least, he is supposed 
to be liable for damages in case he has not properly performed 
his duty. The writer knows of one case in which the attorney as- 
sumed the burden of a defect in a case where he was really care- 
ful, but where a second person, of the same name as the owner, 
had personated him. It is proper, in the letter of instructions which 
accompanies the check sent to the attorney to complete the loan 
not to direct him to pay to a certain person, but to pay to the 
owner of such property. 

From the amount of this check the attorney deducts the ex- 
penses and charges, and pays over the net proceeds to the bor- 
rower, taking his receipt, of course, for the full amount, and giving 
him a receipt for fees. The borrower's receipt is endorsed, as 
already stated, on the back of the application. When a mortgage 
is satisfied or assigned, the necessary papers for that purpose are 
drawn up by the attorney, and he is responsible for their correct- 
ness, the officer signing whatever he advises. A payment on ac- 
count, not being a matter of record, is effected without the assist- 
ance of the attorney. 

In case of foreclosure, the matter is placed entirely in the 
hands of the attorney up to the time of the sale. When it 
comes to the amount to be paid, this is a business matter which 
is decided by the officers of the bank. If bid in, it is the 
duty of the attorney to see that the title is perfected in the 
bank, and the judgment is regularly entered for the deficiency, 
if any, a transcript of which judgment should be delivered to the 
bank. It is also his duty, if advisable, to institute supplementary 
proceedings in order to execute this judgment. If a purchaser be 
found for the property held by the bank, it is the duty of the 
attorney to draw up a contract of sale, which generally stipulates 
that the final delivery of the deed shall be at his office, and here, 
again, he is responsible for the correctness of the paper. 

Very few cases occur in which the bank requires the aid of counsel 
in regard to its money or deposits. Advice is sometimes requisite as to 
the construction of the statute law, and there is sometimes litigation 
arising from adverse claimants to moneys deposited, or from alleged 
errors on the part of the bank. A certain by-law which has been 
adopted by most of the Savings banks, and which has in the main 
been sustained as reasonable by our Court of Appeals, has been a 
fruitful source of litigation. This by-law is usually to the following 
effect — that the bank will endeavor to prevent fraud, but any pay- 
ment made to a person producing the proper pass-book shall be 



202 PRACTICAL BANKING. 

valid. Sometimes the expression is "will use their best endeavors," 
and this has been construed to require a much higher degree of 
care than demanded by the other phraseology. What constitutes a 
proper amount of diligence on the part of the bank is the turning 
point of many cases, and the question of fact is usually submitted 
to a jury, who, in the vast majority of cases, find against the cor- 
poration. In the cases of trust accounts, of associate accounts, of 
insolvent depositors, and depositors deceased or supposed to have 
deceased, there are frequently adverse claims, and the bank is usually 
secured by having the amount nominally paid into court to abide the 
result of the action between the other parties ; but if paid over to 
one of the claimants, there is danger of litigation and possibility of 
loss. This has been the case even where money was paid over on 
genuine letters of administration granted upon the effects of a per- 
son believed to be dead, but who inopportunely appeared and had 
to be paid a second time. 



STATE SUPERVISION. 203 



CHAPTER XII. 
STATE SUPERVISION AND REPORTS. 



In many, but not all of the States, officers are appointed for the 
purpose of supervising and regulating Savings and other banks and 
their affairs. In New York State* no Savings bank can be organ- 
ized hereafter without the assent of the Superintendent of the Bank- 
ing Department, and there seems to be no appeal from his decision. 
During the existence of the Savings bank it is subject to his in- 
spection by means of examinations and reports, as follows: — 

A semi-annual report, as already described under the duties of 
the secretary. 

A special report on any subject and at any time required by him. 

An examination by himself or by deputies once in two years. 

A special examination whenever, in his judgment, it shall be 
necessary. 

The expenses of special examinations are borne by the corpora- 
tion examined. Those of the regular examinations and other ex- 
penses of the department are borne by the corporations in propor- 
tion to their size, and, finally, the remedies in the hands of the 
Superintendent in case of improper action are, first, the publicity 
effected through his report to the Legislature, and, second, his 
power to make complaint through the Attorney-General in case of 
violation of law, or improper exercise of corporate powers ; and the 
remedies which may be applied by the court upon this proceeding 
are : Removal of the board of trustees or any of their number ; 
appointment of receiver and dissolution of the corporation, or the 
consolidating of the institution with a similar one which may be 
willing to accept the transfer. . . . The Superintendent has re- 
cently been given supervision over the receivers of failed Savings 
banks, who are now required to report to him, and he has been 
made the custodian of any unclaimed balances which the receiver 
may have on hand in favor of depositors at the termination of his 
receivership. Thus, during the existence of a Savings bank the 

* All institutions of the kind within the State are made subject to its control, and a 
penally is imposed for any person receiving or offering to receive Savings deposits in 
any town where there is an organized Savings bank. 



/!C>4 PRACTICAL BANKING. 

Superintendent has no positive governing power over its acts, but 
is the head of a bureau of information. He himself has no power 
to remove trustees, or to annul any of their acts, but the moral 
power given by his authority for compelling information is probably 
beneficial. 

The problem of State supervision is a very difficult one. A 
supervising department like the one under consideration usually be- 
comes, after a time, a mere bookkeeping department, and if the 
reports of the several institutions check off correctly on his sum- 
maries, as found by the clerks in his department, the Superintend- 
ent goes no further, but devotes his time to the more congenial 
and dignified pursuits of practical politics. This is without any evil 
consequences in peaceful times, when there is no financial embar- 
rassment, and everything goes swimmingly, but usually the same 
let-alone policy is continued from the force of inertia, into a pe- 
riod when the times begin to grow shaky, and generally, the 
superintendent awakes to find that his rose-colored reports, for 
some time past, have been delusive. Then there will be a reac- 
tion from King Log to King Stork, and the state of the most 
prudently managed institutions will be looked upon with suspicion, 
and very likely some unnecessary wrecks will be the consequence. 
This was the case in the period of financial reaction, which fol- 
lowed our Civil War and reconstruction period, and presumably its 
history will repeat itself. 

There is one very important lack in the system of reports as 
now carried on. There is nothing corresponding to a profit and 
loss account. There is nothing to show, analytically, whether the 
dividend which has been paid to depositors has been earned during 
the period covered, or whether it is subtracted from the previous 
reserve ; whether it is strictly from the income, or whether inci- 
dental gains have been relied upon to help it out. Such an ac- 
count should be required from every Savings institution, and should 
be most carefully scrutinized. In doing so there is a very import- 
ant element which may readily prove deceptive. It is the question 
of premiums on stock investments. Let us suppose that the nor- 
mal rate of interest on money is about four per cent., and that it 
does not vary much from that figure on fair security, and let us 
suppose that a municipality has issued its bonds, bearing ten per 
crmt. interest, and payable in twenty years. Let us again suppose 
that another municipality has issued its bonds, bearing five per 
cent, interest, and payable in ten years, that another one has issued 
three-per-cent. bonds, payable in fifteen years. We are assuming 
that the security in all these cases is as good as anything human 
can be. In case of the ten-per-cent. bond running twenty years, it 
is evident that there is an extra interest of about six per cent., 
which is to be collected every year above the market rate. There- 



STATE SUPERVISION. 205 

fore, the longer this thing continues the more valuable is the bond, 
and we shall indisputably find that it bears a proportionate pre- 
mium. The value is not expressed by the par $ 100. It is the 
present worth of $ 100 due twenty years from now -\- the present 
worth of $10 due one year from now, -f- the present worth of $10 
due two years, + the same at three years, + etc., and in order to 
be perfectly accurate these present worths must be computed at 
compound interest, and this computation must be semi-annual or 
annual, according to the terms of the bond. The five-per-cent. 
bond would not be worth so much, both because there is a smaller 
excess of interest over the market rate, and because this excess con- 
tinues to run for a shorter time. The three-per-cent. bond would 
be worth still less. In this case there is a deficiency of interest 
which the buyer should be compensated for now, and the longer 
it has to run at three per cent, the worse off is the purchaser ; 
therefore, this bond would be worth less than par. Now, it has 
been claimed that the true measure of the surplus of a Savings 
bank, as far as its stock investments are concerned, is the nominal 
or par value of those investments. That is to say, a bank having 
seven-per-cent. bonds to a certain amount is no better off than 
one having 3^-per-cent. bonds. A bank whose seven-per-cent. 
bonds mature next year is no stronger than one where the seven 
per-cent bonds have twenty-five years to run. 

The advocates of this theory consider that they are acting on the 
safe side. They consider the premium as a loss, once for all ; there- 
fore, at a period of buying, they would cut down the dividend to 
depositors, perhaps to nothing, simply because the institution has 
been making favorable investments. On the other hand, in subse- 
quent after years, they would treat the entire revenue from these 
bonds as all profit, and thus the depositors at this time would re- 
ceive more than would be, on the other theory, the fair earnings of 
their money. 

Another plan is to hold the stocks at the amount they cost. By 
this means the loss, instead of being thrown upon the year in 
which they were purchased, is thrown into the year during which 
they are sold or redeemed, and this is a still more dangerous way 
of looking at it. In the former plan the stocks, if worth above 
par, as they usually are, are steadily undervalued, while in this 
method they are overvalued, in all probability, during most of the 
time they are held. In one case there is a fallacious calculation of 
current earnings ; in the other case, there is a fallacious estimate of 
surplus in reserve. The true principle would seem to be that each 
year or half year an equitable portion of the amount paid for pre- 
miums, or conversely, of the amount received for discount, should 
be wiped out, so that the differences between par and market value 
would steadily and gradually disappear as the bond approached its 



206 PRACTICAL BANKING. 

maturity. Thus, the ten-per-cent. bond of which we spoke would 
be considered as earning, each year, the rate to which its cost price 
would be equivalent when averaged over the term — say four and 
a-half per cent. The remaining five and a-half per cent, should not 
be considered as earnings, but as an offset to the depreciation of 
bond, or a refunding to us of extra premium, which we paid for an 
abnormally high rate of interest, and while this is true in theory 
it can be empirically tested by the state of the market. It will be 
found that, making allowance for the shifting productiveness of 
money and some other disturbing element, such as public confi- 
dence, that the market price of a security will settle in about this 
manner : That each year there will be a depreciation, amounting 
approximately to the difference between the current rate of interest 
on that kind of securities and the revenue actually produced. We 
would therefore enunciate this formula for ascertaining the true 
earnings from stock investments. From the cash income (a) re- 
ceived subtract such part (b) of the premium, as will progressively 
consume the entire premium at the date of maturity. The differ- 
ence is the current earnings (V). 

Again, take the difference between the market value (d) at the 
beginning of the period, and the market value (<?) at the close of 
the period. The difference between d and e is the gross deprecia- 
tion (/), or the gross appreciation ( — /). 

Combining b, taken negatively, with /, or — /, we have the inci- 
dental or speculative loss or gain (/, or — p). 

P=+f-b. 

Thus there will be four cases. 

First. — A gross depreciation equal to the amount of premium 
written off. Here there is no loss nor gain. 

Second. — A depreciation greater than the amount of premium 
written off. Here there is an incidental loss to be taken from the 
surplus. 

Third. — A gross depreciation less than the amount of premium 
written off. In this case there is an incidental gain or a real ap- 
preciation. 

Fourth. — An appreciation which, together with the premium writ- 
ten off, is always an incidental gain. 



Our examination of the functions of a Savings bank brings us to 
the conclusion that it is simply a money making corporation— an 
association of small capitalists who combine for the purpose of hav- 
ing their small investments possess an earning power by aggrega- 
tion. The 'officers and employees of the Savings bank are merely 



CONCLUSION. 207 

their agents in this. The entire resources of the bank, whether 
credited to deposits or to surplus, are the absolute property of de- 
positors as an association. The trustees are a body whose constitu- 
tion is somewhat anomalous, being the unpaid custodians of money 
not their own, but whose duties are assumed as a public burden 
and as a distinction. This latter peculiarity, the constitution of a 
board of trustees, which is independent of the real proprietors of 
the concern, seems to me the only point which gives a Savings 
bank, as now organized, a right to be called a benevolent institu- 
tion. It is benevolent for the trustees to give their time and ser- 
vices without compensation in the management of the money of 
others. It is not benevolence, however, to invest a man's money 
and pay him over the proceeds. Although in practice, this plan 
of organization has worked better than the one where there is a 
body of stockholders whose capital is substituted for a surplus as 
guaranteed to depositors, yet it is by no means proved that the 
advantage would not be on the side of the latter form, which 
eliminates all pretence of benevolence, and makes the Savings 
bank what we believe it to be, a pure matter of business. Of the 
three forms of associated saving, viz., the mutual, which we have 
described at length, the stock, or business-like form, which we have 
just touched upon, and the governmental, which, of late years, is 
becoming the subject of experiment, time alone can decide which 
will survive as the fittest. 



208 PRACTICAL BANKING, 



CHAPTER XIII. 
HOW INVESTMENTS SHOULD BE MADE. 

We shall close this part of our work by giving some rules re- 
lating to Savings banks' investments. The Legislatures of the sev- 
eral States have adopted regulations on this subject, thus lightening 
the responsibility of Savings bank directors. These regulations are 
the outcome of a conservative spirit, and should be observed. 
Nevertheless, a wide latitude exists, which cannot be completely 
traversed by Legislative regulation. To a very important degree the 
directors must exercise their own wisdom in making investments. 
The following remarks on this subject were made by Mr. Washing- 
ton B. Williams at the annual meeting of the American Bankers' As- 
sociation in 1882. They are worthy the attentive study of those 
who are entrusted with the duty of investing the funds of these 
institutions. 

Safety is the first consideration, and profit is secondary. Again, 
Savings banks are not confined to investments which are readily 
convertible. Here, also, safety comes first ; convertibility is of minor 
importance. 

Mortgages on real estate, being less readily convertible than some 
other securities, bear higher interest. At the same time, no prop- 
erty is more stable in value, and none less likely to depreciate, 
than real estate. Neither the recent general depression from former 
inflated values, nor any special instances of loss, affect the truth of 
this general proposition. 

Mortgages on real estate, accordingly, have always been a favor- 
ite kind of investment for Savings banks. They have other advan- 
tages, in not being readily subject to theft or misappropriation ; and 
the laws of the several States, as well as the general rules by 
which courts govern and control trustees, declare this mode of in- 
vestment to be the most desirable. 

Taxes are high in this country, are thrown heavily on real es- 
tate, and are generally paramount to mortgages. To secure prompt 
payment of interest and taxes, the property mortgaged ought gen- 
erally to be improved and productive of rent. 

The Savings bank law of New York allows the investment of not 
over 60 per cent, of the deposits in such mortgages. That of New 



HOW INVESTMENTS SHOULD BE MADE. 200. 

Jersey allows 70 per cent., and these serve to indicate the general 
rule. 

By examining the reports as to the Savings banks of the several 
States it will, however, be found that the Savings banks of New 
England invest not over 35 per cent, of their trust funds in mort- 
gages, and those of New York City a less proportion. 

The best conducted Savings bank in Jersey City, N. J., which has 
passed safely all the depressions and panics of thirty years, has 
generally maintained, and still maintains, its mortgage investments 
at over 65 per cent., of a deposit line of over $ 5,000,000. 

These different usages, though they doubtless result from more 
than one cause, yet point with sufficient clearness to this important 
rule : Taxation should be so adjusted as in no wise to deter 
Savings banks from freely investing on mortgages on real estate. 
It is a most unwise policy as to the interests of the industrial 
classes to drive Savings banks out of this mode of investment. It 
is the mode which is at once solid in basis, understood by and ac- 
ceptable to the depositors, and beneficial to them and the commu- 
nity where the savings arise, by re-distributing the savings in the 
form of loans. Such investments ought not to be taxed, even if it 
should become necessary to accord a special preference in this re- 
spect to Savings banks. These institutions represent the industry 
and frugality of the masses, and every effort should be made to put 
them^on the soundest footing. In my belief, nothing can so surely 
do this, and so certainly retain confidence, as to encourage, facilitate 
and require the investment of the savings deposits in mortgages 
properly secured on the farms, the shops, and the homes of the 
people. If these are not real values, what are? How can mere 
promises to pay by the same people, either individually or collect- 
ively, be any better? 

It is, then, to be regarded as a prime duty of legislators to so 
regulate taxation as to encourage, not deter, investments by Sav- 
ings banks in loans on real estate. 

A trustee should take no risks that can be avoided. If he acts 
on this rule, he is discharging his full duty. If he violates it, 
although from good motives, if he allows his confidence in his own 
skill in choosing among the many ordinary investments in the 
market to lead him to transcend it, he would be restrained by 
injunction by any court having jurisdiction of trusts, even if the 
particular investment were a successful one. High rates of interest 
are quite a secondary matter. 

In order to avoid, then, as far as possible, all temptation to do 
more than one's duty, as trustee, or to manifest special financial 
skill, or to make the earning of interest paramount to absolute 
safety, we would adopt certain rules. 

Large deposits, which do not come from savings, but which are 



2IO PRACTICAL BANKING. 

the capital of persons who have acquired wealth, should be rejected. 
They can invest their own funds, and they are likely to withdraw 
their deposits suddenly and in large sums. 

Bonuses and discounts on buying securities should not be sought 
or allowed. They tend to drive away the best-secured loans, and 
to introduce a speculative habit of looking at the immediate appar- 
ent gain rather than the ultimate security. 

Good mortgages on improved real estate, to about half its value, 
should be encouraged and granted up to the highest legal limit, 
without fear. If necessary, the rate of interest on these should be 
reduced, so as to secure the very best of that class of investments. 

Would this be safe in case of a run on the bank? 

It would for several reasons : 

First. — The remaining 35 per cent, and upwards of convertible se- 
curities would be available. 

Second. — Such mortgages, though not promptly available at par, are 
always excellent securities to borrow on temporarily to meet such 
emergencies. 

Third. — The mortgage-investments being to a large extent loans 
among the same community which affords the depositors, there is a 
powerful influence at work to sustain confidence in the assets of 
the bank. 

But, as a further means of safety to all, the bank should never 
hesitate, in case of panic, to enforce its thirty, sixty or ninety day 
rule, as the case may be, or to close its doors. It is nothing but 
the common agent or trustee of the depositors, who, as above 
shown, have a common interest in its funds and investments. It 
has no financial reputation to keep up as a source of profit to 
itself or to attract deposits. Its whole duty is summed up in the 
one word " safety." 

A trustee has neither moral nor legal right to sacrifice a part of 
the common assets in order to give an advantage to those of the 
common proprietors who first run to his door. A court having 
jurisdiction of trusts would restrain him by injunction from thus 
violating his prime duty of taking care of the common property 
for the common benefit. Some special charters of Savings banks 
expressly provide for such action. I think the power and duty of 
the courts plainly arises out of the nature of the trust. But to 
avoid all question it should be provided for by proper legislation 
wherever this ordinary class of Savings banks exists. 

The salutary effect of such judicial action is at once apparent. 
The bank stands in this emergency like any other trustee who seeks 
the direction and protection of the courts. 

They will stop any ill-advised suits, hold back every hostile hand, 
and open the doors again and direct payment by installments if 
prudence so indicates. This is the best and safest way for real 



HOW INVESTMENTS SHOULD BE MADE. 211 

savings depositors, and meets all their actual needs in the supposed 
case of a panic. In the meantime, the assets are producing their 
regular income, there are no sacrifices of securities, the ignorant and 
alarmed depositors are protected against loss, and none gets an ad- 
vantage over the other, and the bank finally resumes without 
injury. 

Too much unwillingness to adopt this safe and just course, if it 
becomes necessary, would savor of a desire to do more than the 
duty of a trustee ; a course neither incumbent, nor, indeed, justifiable. 

As a corollary to this view, would come the rule of giving all 
due publicity to the affairs and investments of the bank, at least 
as to its class and kind of investments and their amounts. Inquiry 
was recently made of a Savings bank in the City of New York 
for a statement of this character, such as is made public in many 
banks, and is required by law once or twice a year in some States. 
The answer given was, that that bank made no such statements, 
and that the names of its trustees were sufficient guarantees to the 
public of its soundness and good management. I need not say 
that such views are contrary to the true position and office of a 
Savings Bank. 

Investments in expensive buildings should be avoided. In many 
cases, the whole apparent surplus will be found to be absorbed in 
an unproductive banking-house. 

Government bonds are the safest of convertible investments, and 
so are generally the bonds of the State in which the bank is situ- 
ated. They may be guarded against the ordinary chances of fire 
and theft by well known precautions, such as registry, stamping, &c, 
but the low rate of interest which they must henceforth produce 
renders it very desirable to see if the field can be extended with- 
out losing sight of our cardinal rules. 

It must be conceded that personal security of two or more names 
is not admissible, notwithstanding the custom of many New Eng- 
land Savings banks to accept such security. Not only is this usage 
entirely opposed to the general law of trusts as established by the 
experience of two centuries, but it leads to complications and temp- 
tations outside of the line of duty which directors of a Savings 
bank ought to confine themselves to. 

Stocks of railway and manufacturing corporations must also be 
excluded. In fact, railway management, as to treatment of stock- 
holders and value of stock, is now almost synonymous with decep- 
tion and fraud. If there are exceptions, they serve to establish the 
general rule. 

As to other corporations, the value of their stock depends so 
much on the changing market, on the course of mechanical inven- 
tion, on the individual qualities of the managers, that it is too un- 
stable for our present purpose. 



212 PRACTICAL BANKING. 

Railway bonds, secured by first mortgage on the entire road, 
would seem a safe class of investment with the exercise of ordi- 
nary prudence, and at one time were largely taken by some Savings 
banks. So vast and so constantly increasing are these great internal 
improvements, so enormous the flow and reflow of business over 
them, so immense the probable development of that business in the 
future, that such mortgages, if they could be had at a proper rate 
per mile, would be among the safest of investments, assuming rea- 
sonable care in selecting those of apparently permanent value. 
There is difficulty in ascertaining the history, legal position and 
amount of such mortgages, but not so great as to be insurmount- 
able. The great objection is to the extravagant amount per mile of 
the bonds issued in many cases, compelling after a while the bond- 
holders to take the road It is always an undesirable thing for a 
trustee to be compelled to enter into a current business with the 
trust funds. 

Municipal indebtedness has attained large proportions in this 
country, and has long furnished a field for private and corporate 
investment. Experience has fully shown that we must strike out 
from the list of Savings bank investments all municipal bonds is- 
sued in aid of any railway undertaking. The Legislatures of several 
States have recognized this, and after once allowing such invest- 
ments by Savings banks have very judiciously forbidden them. 

Subject to this exception, the public debt of local municipalities 
within the State where the Savings bank is located, is a sound 
class of investment, assuming, of course, the exercise of due care 
in the investigation of the origin and aggregate amount of such 
debt. You have the savings of many voters in your care. If in- 
vested in apparently sound municipal obligations, there is, besides 
legal remedies, a great force of public opinion to sustain your claim, 
and to bring about proper provision for payment of interest 
and principal. Experience shows that such debts, when not dispro- 
portionately large, or the result of some arbitrary and unpopular 
scheme, have been among the safest investments we have had. 

It is evident that we must look elsewhere than to Government 
bonds alone for interest paying securities. The directions to look 
in are (i) mortgages on productive real estate to a high percentage 
of the total investments ; (2) well selected municipal obligations ; 
(3) selected railway first mortgages. 

Those to avoid are (1) real estate of merely speculative value, 
and unimproved ; (2) capital stock of railways or manufacturing cor- 
porations ; (3) personal security ; (4) railway aid bonds, and muni- 
cipal bonds where the debt is large in proportion to the resources, 
or is the result of too sanguine speculation on the future. 

Call-loans on deposit of collaterals form a large part of the 
business of some city Savings banks. No doubt, in a large com- 



HOW INVESTMENTS SHOULD BE MADE. 213 

mercial center, these may be safely and quickly made. The objec- 
tion to them is that they tend to throw the whole management 
and selection of investments into the hands of some one person. 
However efficient such management may be for a time, we know 
that most great disasters have also arisen from this. Other invest- 
ments, such as mortgage loans, or the purchase of securities, are 
usually, in well-managed banks, passed upon by a board or com- 
mittee. This old-fogy method is the safest, and so far as practica- 
ble should be followed by institutions whose paramount object is 
safety.* 

Some New England and other Savings banks have loaned funds 
on mortgage on lands in other States. There is no reason why 
such loans on suitable and proper security should not be as good 
and safe in Massachusetts as in New York ; but there is a great 
difficulty in being assured that you are getting proper security. At 
home your own board or your own investment committee can 
judge, depositors are more or less familiar with your securities, the 
risk of acting on other men's judgment, removed from your own 
responsibility, is avoided, your risk is less, your certainty of protec- 
tion by the courts is greater. Prudence dictates that even in these 
days of easy locomotion and of assimilating business and values, 
you should not extend your reach too far and get beyond the 
range of your own vision and your own capacity to judge and act. 
It may be the office of a good judge to enlarge his jurisdiction, but 
it is not the duty of a prudent trustee. 

The same reasons will apply to distant municipal and railway se- 
curities. And caution should be exercised in going beyond your 
own State as to any debt of local municipalities. My own view is 
that this should be prohibited, except, perhaps, in certain cases, 
such as well-known large cities whose affairs are conducted on a 
sound basis, and with the advantage of the best business talent. 
This is true of Boston, New York, Philadelphia and others, and is 
not affected by the fact that they have also been now and then 
attacked by municipal thieves. 

* A. startling instance of the danger of this call-loan method has recently occurred in the 
Newark Savings Institution now insolvent. 



PART III. 
CLEARING- HOUSES 



THE CLEARING-HOUSE. 217 



CHAPTER I. 

ORIGIN AND UTILITY OF THE CLEARING-HOUSE. 

Closely connected with the general subject of banking is that of 
the Clearing-house. This is a comparatively modern institution, the 
Edinburgh bankers claiming the credit of establishing the first one. 
The earliest of whose transactions we have any record, however, 
is that of London, founded in 1775, or earlier, and of this little 
was known to the public until it began to publish regular state- 
ments of its transactions, May 1st, 1867. The literature on the sub- 
ject is almost wholly the creation of the last thirty years. Works 
on banking and political economy, of an earlier date than this, 
rarely, if ever, notice the subject at all. For more than three 
quarters of a century after its establishment the London Clearing- 
house and that of Edinburgh remained the only organizations of 
the kind known to exist. The monetary systems of most European 
States, centering around a single great bank, located at the capital 
of each, found in this a means of effecting mercantile settlements. 
Furthermore, the use of bank checks in making payments, which 
chiefly creates the need of the bankers' Clearing-house, has in re- 
cent years attained a development previously unknown. The growth 
of American banking, decentralized and distributed among many 
banks, and the increasing use of bank checks as a means of pay- 
ment, gave birth to the next Clearing-house in the order of time 
after that of London. The New York Clearing-house was estab- 
lished in 1853, from which date the growth of the Clearing-house 
system in the United States has been stupendous. Boston followed 
in 1856; Philadelphia, Baltimore and Cleveland in 1858; Worcester 
in 1 86 1 ; Chicago in 1865, all the others are of later date. At pres- 
ent there are thirty-one Clearing-houses known to exist in this 
country. Each of our prominent commercial cities has one. The 
United Kingdom has six, Australia one, and they are found in 
France, Germany, Switzerland and Italy, though checks are so little 
used on the Continent of Europe that the Clearing-houses of the 
last four countries have comparatively small transactions. The ex- 
changes of American Clearing-houses were $51,827,000,000, in 1883, 
and in 1881 reached a maximum of $63,414,000,000, adjusted by the 
payment of balances not exceeding six per cent, of the amount 



215 PRACTICAL BANKING. 

cleared, the actual cash handled being estimated at about two per 
cent, of the clearings. From the inauguration of the Clearing-house 
system in 1853 to December 31, 1883, it had effected settlements 
amounting to about $ 880,000,000,000, by paying balances of about 
$57,000,000, or 6)2 per cent, of the clearings. The amount of actual 
cash handled was very much less than this, as balances are to a great 
extent paid by means of checks or certificates issued from some 
common depository, without handling actual cash. The Clearing- 
house is, therefore, one of the most useful agencies called into be- 
ing by the wants of modern commerce. It is among the most 
interesting features of our financial mechanism and well worthy of 
careful study. Susceptible of almost indefinite expansion, the clear- 
ing system in its various forms holds in possibility the solution 
of problems which have long engaged the attention of thinkers. 

A glance at some of the more common banking operations will 
suffice to show the need of a Clearing-house wherever any con- 
siderable number of banks are located in the same vicinity. Mer- 
cantile establishments are constantly receiving in the course of 
business not only specie, but usually, to a much larger extent, 
bank notes, checks, drafts, or other mercantile paper. To present 
this paper at the counters of the various banks at which it is 
payable would take a great deal of time. The dealer, therefore, 
deposits it in the bank with which he keeps his account, where, 
either at once, or at latest when collected, the amount is placed 
to his credit and goes to swell his balance. This is the usual way 
in which a bank receives the paper payable at other banks. It 
may also be taken in payment of notes payable at the bank re- 
ceiving it. Although bank notes, as well as the various kinds of 
mercantile paper, are so received, yet the great bulk of all such 
receipts, especially in the large cities, consists of checks. When 
the paper in question is payable at the bank receiving it, the trans- 
action is closed by the simple delivery in the case of bank notes, 
and in the case of checks by charging them to the drawer, the 
result being, in the latter case, a simple transfer on the books of 
the bank from the account of the drawer to that of the drawee. 
Where most of the transactions of a community center in a single 
institution, as formerly in the case of the Bank of England, and at 
present in the case of the Bank of France, the larger part of the 
check transactions may be settled in this way. Thus at Paris 
where the Bank of France performs the functions of a great Clear- 
ing-house, its clearings or transfers reached $6,008,243,900 in 1883, 
as compared with $813,238,000 at the Paris Clearing-house. In 
1881, the clearings of the Bank of France reached $8,772,000,000, 
while those of the Paris Clearing-house were only $908,600,000, the 
former being nine and three-fourths times the latter. To make 
provision for this class of business, the Bank of France furnishes 



THE CLEARING-HOUSE. 219 

special books of red colored checks — so-called, " dons de vire7nent 
rouge" — the object of which is to enable payments to be made 
by their means to other persons also having an account at the 
bank without its being possible for any one unlawfully to obtain 
value for them, since they only operate as orders to the bank to 
transfer such an amount from the drawer's account to some other 
account on the books of the bank, and never as vouchers for the 
withdrawal of funds from the establishment. The Bank of Eng- 
land furnishes no account of its clearing transactions, but they 
must be a much smaller proportion oi the total than those of 
the Bank of France, banking being less centralized in London 
than in Paris. 

In this country no one bank concentrates in itself the larger por- 
tion of the business. Free banking and competition keep the 
banks more nearly on an equality. The larger part of the checks 
received by any bank, in the course of business, are likely to be 
drawn on some other bank, of which the3 r must be collected by 
the receiving bank. As business increases in any locality, each bank 
is likely to have a larger number and amount of demands upon 
most of the other banks in the place, and they eventually become 
too large and numerous to be conveniently settled between the in- 
dividual banks. Before the establishment of a Clearing-house in 
this country this method was pursued in New York long after the 
inconvenience became so great that it would now be considered 
quite intolerable. Mr. J. S. Gibbons, in his very interesting and in- 
structive book, The Banks of New York and the Panic of 1857, 
gives the following graphic description of the difficulties attending 
this mode of settlement : 

"During the few years following 1849 the number of banks in 
New York was increased from twenty-four to sixty. To make the 
daily exchange, one half of them must necessarily send to the other 
half. But this plain division of the service was not convenient or 
economical. It was found better for all of them to do a part of 
the distribution, and thus the whole sixty porters were in motion at 
the same time. Each carried a book of entry, and the money for 
every bank on which he called. The paying teller of the receiving 
bank took the exchange and entered it on the credit side of the 
book ; then he entered on the debit side the return exchange and 
gave it with the book to the porter, who hastened to the next 
bank in his circuit. The porters crossed and recrossed each other's 
footsteps constantly ; they often met in companies of five or six at 
the same counter, and retarded each other, and they were fortunate 
to reach their respective banks at the end of one or two hours. 
This threw the counting of the exchanges into the middle and 
after part of the day, when the other business of the bank was be- 
coming urgent. 



220 PRACTICAL BANKING. 

" Instead of attempting a daily adjustment of accounts, which 
would have consumed several hours and caused much annoyance, 
it became a tacit agreement that a weekly settlement of balances 
should be made after the exchange of Friday morning, and that 
intermediate draft drawing should be suspended. The weaker and 
more speculative banks took advantage of this by borrowing money 
on Thursday, which restored their accounts for Friday, and its re- 
turn on Saturday threw them again into the debit column. In this 
way the banks distant from Wall Street managed to carry an in- 
flated line of discounts, based on debts due to other institutions. 
It became an affair of cunning management by some to run a small 
credit of two or three thousand dollars each with thirty or more 
banks, making a total of one hundred thousand dollars, on which 
they discounted bills. Consequently, the Friday settlements proved 
to be no settlements at all, but a prodigious annoyance. As soon 
as the paying teller or his assistant completed the exchange balance 
list the cashier of each bank would draw checks for every debt 
due to him by other banks, and send out the porters to collect 
them. A draft on one in favor of another might settle two ac- 
counts at once, but there was no understanding that made it possible 
to secure that small economy ; or, if there was, it was disregarded. 
The sixty porters were out all at once, with an aggregate of two 
or three hundred bank drafts in their pockets, balking each other, 
drawing specie at some places and depositing it in others, and the 
whole process was one of confusion, disputes, and unavoidable 
blunders, of which no description could give an exact impression. 

"After all the draft-drawing was over came the settlement of 
the Wall Street porters among themselves. A Porters' Exchange was 
held on the steps of one of the Wall Street banks, at which they 
accounted to each other for what had been done during the day. 
Thomas had left a bag of specie at John's bank to settle a balance 
which was due from William's bank to Robert's ; but Robert's bank 
owed twice as much to John's. What had become of that? Then 
Alexander owed Robert also, and William was indebted to Alex- 
ander. Peter then said that he had paid Robert by a draft from 
James, which he, James, had received from Alfred on Alexander's 
account. That, however, had settled only half the debt. A quarter 
of the remainder was canceled by a bag of coin which Samuel had 
handed over to Joseph, and he had transferred to David. It is en- 
tirely safe to say that the presidents and cashiers of the banks 
themselves could not have untangled this medley. Each porter 
had his tally, and by checking off and liberating first one, whose 
account was least complicated, and then another, they finally 
achieved a settlement. 

"This scene was re-enacted on every Friday. In consequence of 
the porters being withdrawn from their regular service in the bank, 



THE CLEARING-HOUSE. 221 

extra labor was imposed on others, responsibilities became mingled 
together, and the officers were kept for the whole day in a state of 
distraction and anxiety. The paying tellers were subject to frequent 
interruption, as they were obliged to receive and deliver all specie. 

" Not the least irritating feature of the case was that a single small 
draft by any one bank on any other induced a general drawing, and 
all became involved in commotion and 'war' upon each other. If 
time were allowed, the debtor banks would finally be obliged to 
pay the liquidating balance ; but three o'clock arrested the process, 
and the banks where the demand was then in force were obliged 
to disburse the coin. It was not unusual for a debtor bank to add 
fifty thousand dollars to its specie at the close of the day, with 
its debt doubled, while a creditor bank to half a million in the 
general account, would find itself at three o'clock depleted of one or 
two hundred thousand dollars in coin." 

This, it will be noticed, was when the bank settlements at New 
York could not have reached to one-sixth of their present amount. 
It may be safely affirmed that the vastly larger transactions of the 
present day could not be settled in the old way. It was not until 
after much deliberation and considerable opposition that a Clearing- 
house was established at New York, but the success of the experi- 
ment soon dispelled all doubts of its utility and necessity, and led 
to the adoption of the system in other cities. 



222 PRACTICAL BANKING. 



CHAPTER II. 
ORGANIZATION" AND MECHANICAL ARRANGEMENTS. 

To establish a Clearing-house a number of banks associate them- 
selves together, under certain regulations more or less elaborate, ac- 
cording to circumstances, for the purpose of settling daily, at one 
time and place, the mutual demands arising between the banks. The 
officers of such an association are usually a president, or chairman, 
a secretary, treasurer and manager, with a Clearing-house commit- 
tee, and such others as the wants of the association require. At 
New York, in addition to the Clearing-house committee, there are a 
committee on conference, a nominating committee, a committee on 
admissions, and an arbitration committee. The manager is some- 
times chosen by the association, usually by the Clearing-house com-. 
mittee, which generally has charge of all matters incidental to the 
operations of the association not otherwise specially provided for. 
The larger Clearing-houses have also an assistant manager. The 
salary of the manager is fixed pursuant to the rules of the associa- 
tion, and he gives bonds with approved sureties for the faithful dis- 
charge of his duties. At New York the manager gives bonds for 
$10,000, clerks for $5,000 each. He has, under the control of the 
Clearing-house committee, immediate charge of all business at the 
Clearing-house, so far as relates to the manner in which it shall be 
transacted ; and the clerks of the establishment, if any, as well as 
the settling clerks and porters or messengers of the associated 
banks, while at the Clearing-house, are under his direction. 

At a fixed hour, each day, representatives of the banks meet at a 
specified place, called a Clearing-house, and exchange the checks or 
other paper which they hold against one another. The paper 
which the banks take to the Clearing-house is called the exchange, 
and the total amount of paper exchanged is called the clearings, or 
exchanges. Those banks which bring to the Clearing-house a less 
amount in checks or other paper than they take away — called debtor 
banks — pay at a later hour on the same day to the banks which 
bring more than they take away — called creditor banks — a balance, 
either directly or through the Clearing-house, in cash or its 
equivalent. The payment of the balances by the debtor banks, and 
the receipt of these balances by the creditor banks, complete each. 



ORGANIZATION AND MECHANICAL ARRANGEMENTS. 223 

day's settlements. As the aggregate amount brought is always the 
same as the amount taken away, so the balances due from the 
debtor banks must be exactly equal to the amount due to the 
creditor banks. The clearing system is the application on a large 
scale of the principle of set-off. " Clearing," says Mr. H. D. Lloyd, 
in the Cyclopedia of Political Science, Political Economy, and the Po- 
litical History of the United States, " is the settlement of mutual 
claims by the payment of differences." The saving of time and in 
the handling of cash is an obvious advantage flowing from the 
union of banks in a Clearing-house. There are other advantages, 
net less important, which will appear on further examination. 

The mechanical arrangements used by the various Clearing-houses 
in effecting their settlements differ according to the character and 
magnitude of the operations carried on. At some of the smaller 
Clearing-houses there is no permanent place for making the ex- 
change?, the banks taking turns. Where the transactions are of 
large amount, however, it becomes necessary to have a room spe- 
cially fitted up for the purpose. The New York Clearing-house, 
long quartered in the building of the Bank of New York, some 
years ago secured more commodious quarters in a building which is 
owned by the Association. Desks, one for each bank, are arranged 
in three parallel rows, each desk having the name of the bank for 
which it is designed lettered on a silver plate in front, and being 
numbered with the bank's number. At Boston, the desks in the 
Clearing-house are arranged in an oval or elliptical form, facing out- 
ward, as they were in the old Clearing-house rooms at New York. 
The method of doing the business is substantially the same in both. 
The number of banks in the Clearing-house at Boston, December 
31, 1883, was fifty-two, and at New York sixty-four, and the capital 
and profits represented in the former is $50,500,000, against $ 101,- 
930,700 in the latter ; yet the clearings at New York are, on an 
average, nearly eleven times as great as those of Boston, while the 
balances are only about four times as great. 



224 



PRACTICAL BANKING. 



CHAPTER III. 



PREPARATION OP THE EXCHANGE. 



The following analysis of Clearing-house transactions is specially- 
applicable to New York and Boston. The peculiarities of other 
Clearing-houses will be noticed later on. Among the first things 
done with exchangeable paper when received is its classification ac- 
cording to the banks at which it is payable. The teller into 
whose hands it comes usually has a pigeon-hole for each bank, 
numbered with the Clearing-house number of that bank, in which 
the paper payable thereat is placed. At many of our Clearing- 
houses it is obligatory, and at all common, to place upon this 
paper some distinguishing mark, usually the name and number of 
the bank clearing it, to indicate the channel through which it has 
passed. In preparing the exchange for the Clearing-house, the 
amounts, merely of the various items making up the demands against 
each bank, are entered upon a blank called an " Exchange Slip," 
as follows : 

The figures here given, it will be 
understood, are presented merely 
by way of illustration, and not as 
representing in character or amount 
the transactions of the Fourth Na- 
tional Bank. The first footing on 
the Exchange Slip ($195,450 in 
this case) represents the amount of 
checks or other items deposited to 
the close of business on a given 
day for the clearing of the next 
day. The addition of the items re- 
ceived the next morning by mail 
or otherwise in time for the clear- 
ing, makes the second footing ( in 
this case, $268,625.50) being the 
total amount of claims carried to 
the Clearing-house by the Fourth 
National Bank against No. 1, the 
Bank of New York. 



2d Teller. 


No. 1. 


From No. 61. 


FOURTH NATIONAL BANK 


1 

2 500 

|5oo 
1 000 


CO 

00 
00 










150 
800 


00 

CO 








5 
10 


500 

000 


CO 

00 








5o 
40 
85 


000 
000 
000 


CO 

00 
00 











—. — 


— 








195 
4 


45° 

500 

5o 


00 
00 
00 








60 


125 
000 


50 

CO 








8 


500 


00 














— 








268 


625 


50 









PREPARATION OF THE EXCHANGE. 



225 



There is a different exchange slip for each bank, properly labeled, 
to show for which bank the exchange is destined. On this slip are. 
entered the amounts merely, of the different checks or other items 
taken to the Clearing-house. The items on each slip are footed up, 
and the totals entered, the first footing in the first debit column, 
and the final footing in the second debit column of another blank 
called the "Settling Clerk's Statement," ruled as follows, and con- 
taining the names and numbers of all the banks, a part of which 
are omitted to save space : 



No. 61, Fourth National Bank 

Settling Clerk's Statement, January 16, 



No. 


Banks. 


Debit. 


Debit. 


Credit. 




2 


Bank of N. Y. Nat'l Bkg. Ass'n. 
Manhattan Co 


195,450 00 

1 250,000 00 

50,000 00 

175,000 00 

125,000 00 

90,000 00 

225,000 00 

1,427,947 78 


268,625 50 
310,000 00 
71,000 00 
200,000 00 
145,000 00 
125,000 00 
260,000 00 
2,258,772 28 

3,638,397 78 




1 


3 
4 

5 


Merchants' National Bank 

Mechanics' National Bank 

Union National Bank 


3 
4 

5 
6 


6 


Bank of America 


7 


Phenix National Bank 


7 




( Other banks omitted.) 




Footings 


2,538,397 78 


3,297,323 04 












Balances 


34i,o74 74 












3,638,397 78 





In order to have the exchanges seasonably and carefully pre- 
pared, the first debit column is made up and footed at the close 
of business each day for the next clearing, the entries consisting 
of the first footings on the various Exchange Slips, as for instance, 
% 195,45° °n the one given. The heaviest part of the work is thus 
done the day before the clearing, leaving for the limited time left 
in the morning only the work of completing the additions to the 
exchange slips, and inserting the final totals ($268,625.50 on the 
Exchange Slip above) in the second debit column, which shows 
the total exchange sent. The credit column is left blank to be 
filled up at the Clearing-house with the amounts of the return 
exchange representing checks or other items payable by the Fourth 
National Bank. 

On the next page is reproduced an actual "Settling Clerk's State- 
ment" of one of the Boston banks, showing an exact transcript of 
the bank's transactions with the Clearing-house on a certain day. 
Besides the interest attaching to it as a record of actual transac- 
tions, it will serve to make the subject clearer to those not familiar 
with the details of Clearing-house business. 



226 



PRACTICAL BANKING. 

NATIONAL BANK. 



Settling Clerk's Statement, 1883. 



No. 

1 
2 
3 
4 
5 
6 

7 
8 

9 
10 
11 
12 
13 
14 
15 
16 

17 

iS 

*9 
20 
21 
22 
23 
24 
25 
26 

27 
28 
29 
31 
32 
33 
34 
35 
3 6 
37 
39 
40 

41 
42 
43 
44 
45 
46 

47 
48 

49 
50 
5i 
52 
53 
54 



Banks. 



First Debit. 



Massachusetts National 

National Union 

Old Boston National 

State National 

New England National 

Tremont National 

Columbian National 

National Eagle 

National City 

Washington National 

North National 

Atlantic National 

Merchants' National 

Traders' National 

Hamilton National 

Market National 

Second National 

Atlas National 

Shoe and Leather National. . 

Shawmut National 

National Exchange 

National Bank of Commerce. 
National Bank of N. America 

Faneuil Hall National 

National Webster 

Eliot National 

Howard National 

Suffolk National 

Globe National 

Freeman's National 

Boylston National 

Blackstone National 

Boston National 

Maverick National 

National Hide & Leather. . . 
National Bank Redemption. 

First National 

National Revere 

National Bank of Republic . 

Continental National 

Mt. Vernon National 

Third National 

Everett National 

National Security 

Broadway National 

Nat'l Bank Commonwealth. 

Central National 

Manufacturers' National .... 

Fourth National 

Metropolitan National 

Merchandise National 

Lincoln National 

Footings 

Balance , 



Total Debit. 



118 28 

75 96 
3,982 02 
2,009 4 2 



228 04 



51,128 80 



6,118 28 

75 96 

3,982 02 

2,122 58 

599 25 
1,401 00 

1,268 57 



2,971 82 

14 70 

8,356 05 

5 70 

9 00 

69 91 

1,156 73 

10,054 68 

164 14 

2,884 05 

3,251 14 

311 12 

2,099 26 

40 33 

15,376 50 

430 83 

36 93 



68 36 

i,397 82 

223 55 

43,4oo 35 

294 04 

105,686 79 

241 41 

21,173 11 

15,950 00 

162 69 

610 83 

70 00 

• no 70 

355 08 

505 97 

7 00 

17,647 81 

292 26 



228 04 



271,232 36 



Banks Cr. 



50 00 
1,287 5o 

4,500 00 

38 95 

405 20 

1,000 00 

195 56 

320 69 

16 50 

5,4io 55 

93 15 

664 57 

34 42 

3,5i8 56 
648 13 
112 64 

',284 63 
764 10 

9,!75 33 




203 05 
1,264 50 
145 33 
334 64 
143 89 
294 77 

32,307 33 
2,950 36 
1,222 90 
1,053 80 

20,IOQ OO 

20 75 
706 32 

12 19 

1,887 86 

213 45 

i,775 97 

30 00 

54,141 20 

65 30 

50 00 

243 95 



150,655 56 
120,576 80 



271,232 36 



No. 



A study of this statement will make apparent one of the great 
economies effected by the Clearing-house system, namely, the con- 



PREPARATION OF THE EXCHANGE. 227 

solidation into one item of the accounts with all the banks. Thus, 
in the statement here presented, the forty-five debits are repre- 
sented by the single total debit of $271,232.36, and the forty-eight 
credits by the total of $150,655.56, while instead of fifty mutual 
balances to adjust, the single item of $ 120,576.80 covers the 
whole. 

The first column represents the first footing on the exchange slip, 
being the amount of clearing matter received up to the close of 
bank hours for the next day's clearings. The second column repre- 
sents the total debit, after adding the checks or other paper re- 
ceived the next morning by mail or otherwise, in season for the 
day's exchanges. . The blank for the Settling Clerk's statement is 
the same for all the banks. The blank used at Boston contains 
another column between the two debit columns, designed for " Ad- 
ditions," to show the exchange received each morning in season 
for the day's clearing. As this column is not needed, and is fre- 
quently not used, it is omitted in the form above given. The credit 
column is filled up at the Clearing-house with the amounts of the 
return exchange brought by the other banks. When the exchange 
slips are completed and footed, each slip is attached to the outside 
of the package of checks and vouchers which it represents, or the 
amount is marked on the outside of a sealed envelope containing 
them. The different packages are also arranged in the order in 
which they are to be delivered at the Clearing-house, and placed in 
a satchel or other enclosure to be carried thither. The entries in the 
Settling Clerk's Statement are carefully verified and footed, showing 
the bank's total debit against the other banks, and its credit, that is 
the amount with which it is credited, at the Clearing-house. This 
total is compared with the paying teller's footings, and if both agree, 
the correctness of the statement is so far proved. It is rare that an 
error occurs in the debit figures. The total debit is entered on an- 
other blank called a " Credit Ticket," as follows : 



No. 61. New York Clearing-house, 

"January 17, 1884. 

Credit FOURTH NATIONAL BANK $ 3,638,397 . 78. 

J. Smith, Settling Clerk. 



The amount of the exchange for each bank is also entered in 
another blank called a " Check Ticket," as follows : 



228 



PRACTICAL BANKING. 



No. 1. 

BANK OF NEW YORK, 

NATIONAL BANKING ASSOCIATION. 

From No. 61, 
Fourth National Bank. 
$268,265.50. 



A similar ticket is made up for each of the other banks, and is 
delivered to its settling clerk at the Clearing-house, by which to 
" check " the entries in the credit column of his statement, since 
every debit entry on one statement must, if the figures are cor- 
rectly transcribed, correspond with a credit entry on some other 
statement. These check tickets may be made up and delivered by 
the settling clerks at the Clearing-house while the settlement is in 
progress. 

A copy of the debit columns in the Settling Clerk's statement is 
made on another partly corresponding blank, with a space on the 
right for signatures, instead of the credit column. This is called the 
" Settling Clerk's Receipt," and is taken by the messenger who 
carries also the packages of checks or vouchers. The settling 
clerk carries his statement and the credit ticket. At all the larger 
Clearing-houses each bank is represented by these two clerks, the 
messenger or porter, and the settling clerk. At New York some of 
the banks have two settling clerks; the whole force of clerks em- 
ployed by the sixty-four banks being one hundred and sixty. 



HOW CLEARINGS ARE MADE. 229 



CHAPTER IV. 
HOW CLEARINGS ARE MADE. 

At a few minutes before ten o'clock the clerks begin to arrive 
at the Clearing-house, and each settling clerk as he enters passes 
to the manager's desk, his credit ticket showing the amount of ex- 
change with which his bank is to be credited. These amounts 
are entered as rapidly as possible in the credit column of another 
blank called the " Clearing-house Proof," which is given on a sub- 
sequent page. So rapidly is this work done by an expert, that 
within a very few minutes after the last credit ticket is received 
the entries in the credit column are completed and footed, showing 
the total exchange of the day if no error has been made. Just be- 
fore ten o'clock a stroke of the manager's bell calls the clerks to 
order. They take their places at their respective desks, the settling 
clerks inside, and the messengers outside, the former with his state- 
ment so far as completed, the latter with the " Settling Clerk's 
Receipt," and the actual vouchers for the banks to which they 
are to be presented. Another stroke of the bell, at ten o'clock 
precisely, is the signal for the exchanges to commence. No varia- 
tion from this time is allowed on any pretext whatever, and on 
this point the Clearing-house is no respecter of persons. A few 
years ago Mr. Windom, Secretary of the Treasury, desired to wit- 
ness the exchanges, and was apprised of the inflexible punctuality 
required. He arrived some minutes late, only to find that the 
clearings had taken place just as if he had been an individual in a 
private station. 

At the second stroke of the bell, each messenger advances one 
step, which brings him to the desk of the first bank at which he 
is to deliver vouchers. He hands over the exchange package de- 
signed for that bank, also the " Settling Clerk's Receipt," on which 
the settling clerk enters his initials against the amount, as a voucher 
to show that the exchange has been received. The receipt is then 
handed back to the messenger, who passes on and repeats the 
operation at the desk of every other bank for which he has any 
vouchers, finally, coming around to his own desk after having de- 
livered all his packages. Supposing him to have a package for 
every bank except his own, each of the sixty-four messengers has de- 



230 PRACTICAL BANKING. 

livered sixty-three packages. The number of accounts thus settled 
between the banks is, therefore, 64 x 63 = 4032. The time required 
for delivering the exchanges is ten minutes at New York, and five 
minutes at Boston. In the old way of exchanging it would have 
taken several hours. At Boston there is no " Settling Clerk's Re- 
ceipt," and the messengers deliver at each desk the check ticket 
already mentioned, showing the amount of each package delivered. 

The messenger having completed his circuit, takes back to his 
bank the return exchange . left at the desk of his bank by the 
messengers of the other banks, with a statement showing in round 
numbers the result of the clearing. The return exchange, consist- 
ing of the vouchers payable at the bank to which they are de- 
livered through the Clearing-house, is, when brought to the bank, 
delivered to the paying teller for examination, after which, if they 
are all right and the drawers have sufficient funds, the checks and 
other paper are delivered to the bookkeeper and charged to the 
proper accounts, thus closing the transaction. All checks, drafts, 
notes, or other items in the exchanges, returned as " not good," or 
missent, are to be returned on the same day to the bank from 
which they were received, and this bank must make good the 
amount received through the Clearing-house for them ; but when 
returned for want of endorsement or informality, they may, after be- 
ing certified by the returning bank, be passed through the ex- 
changes of the following morning to the amount of $5,000. Errors 
in the exchanges are also adjusted between the banks, the Clearing- 
house not being responsible. 

After the departure of the messengers from the Clearing-house, the 
settling clerks continue their work, none of them being allowed to 
leave until the settlements are completed, without the consent of 
the manager. Each clerk, as soon as he has footed the credit col- 
umn of his statement and carefully revised the work, strikes a bal- 
ance between the total debit and the total credit exchange, which 
shows how much his bank is to receive or pay. He then copies 
these footings into what is called the "balance ticket," as follows: 



No. 61. New York Clearing-house, 

jfanuary 17, 1884. 
Debit FOURTH NATIONAL BANK amount received. .$3,297,323 04 
Credit * * « * brought. . 3,638,397 78 

$ Debit balance due Clearing-house. 

Credit balance due The Fourth National Bank. $341,074 74 



This is passed to the manager's desk. The amount brought has 
been already, as before stated, entered in the credit column of the 
Clearing-house proof. The amount received is now entered in the 



HOW CLEARINGS ARE MADE. 231 

debit column, and the balance in the column " Due Banks " against 
the name of the Fourth National Bank. The next bank may have 
a balance against it, which should be entered in the left-hand col- 
umn under the heading " Due Clearing-house." When all the bal- 
ance tickets have been delivered at the manager's desk, and the 
entries from them made in the proof, the debit and balance col- 
umns are footed, the credit column having been already added. As 
the total amount brought must be the same as the total taken 
away, the debit and credit columns of the proof will agree if the 
work is correct, as also the totals "Due Clearing-house" and "Due 
Banks." If the footings show this agreement, the proof is made, 
and the settling clerks are allowed to leave. It is a very rare oc- 
currence that the footings agree on the first trial. An inspection 
of the Clearing-house proof will show that it contains about thir- 
teen hundred figures. Each entry in the proof may represent the 
result of sixty-three entries in the settling clerk's statement, and 
these probably contain from 60,000 to 70,000 figures, made and 
footed with great rapidity, the entries being frequently made with 
pencil. The credit column of the settling clerk's statement, too, 
must be made up and footed within the short time allowed at the 
Clearing-house. Under these circumstances it is natural that mis- 
takes should frequently occur, any one of which destroys the exact 
balance which should exist between the debit and credit sides of 
the proof. When the proof is footed, and the footings fail to 
agree, the manager or his assistant announces the fact : " The dif- 
ference is $5,530.25," or whatever the amount may be. While the 
preparation of the proof has been in progress the clerks have been 
at work verifying their figures by means of the check tickets and 
otherwise, and the error or errors may have been discovered as 
soon as the discrepancy is announced. Usually all errors are dis- 
covered and corrected within an hour from the announcement of 
the clearing, but sometimes an error occurs which* defies detection 
for a long time, and keeps the whole force of clerks at work for 
two hours or more. Forty-five minutes are allowed for the comple- 
tion of the settlement. Any delay beyond this subjects the delin- 
quent bank to a fine. At n. 15 a.m. the fines are doubled, and at 
12 m. quadrupled, so that the fines accumulate rapidly on the de- 
linquent bank after 11. 15. The object is to offer an incentive to 
the banks to have at the Clearing-house clerks whose figures are 
distinct and legible, and who are rapid and accurate calculators. If 
the examination of the check tickets fails to disclose the error 
or errors, the settling clerks are ordered by turns to pass around 
to the different desks, each calling off the amount of his ex- 
change to every other. This is usually the final method of re- 
vision, and seldom fails to disclose the error. The Settling Sheets 
are sometimes exchanged to facilitate the detection of errors 



232 PRACTICAL BANKING. 

in the footings. The corrections as fast as made are incorpo- 
rated with the proof, and the figures appended to the footings, 
added or subtracted, as the case may be, preserve a perma- 
nent record of each correction. Finally, the manager, or his as- 
sistant, calls off from a balance sheet corresponding to the two 
main columns of the proof, the amount in thousands of dollars to 
the debit or credit of each bank in the exchanges of the day, also 
the time at which the proof was announced, and the fines and 
corrections, which the settling clerks transfer to corresponding 
blanks in their possession. These they take away for the informa- 
tion of their respective banks, which thus have a record of the 
Clearing-house dealings of all their associates. 

The table on the next page is a specimen " Clearing-house Proof." 
The totals show the actual transactions on the day named, but the 
figures are transposed so that they do not show the actual trans- 
actions of any single bank, these not being published. Conse- 
quently, some of the banks appear as having much larger, and others 
as having much smaller transactions than they actually had. 

It is the custom at some Clearing-houses to add together both 
the debtor and creditor sides of the proof, thus duplicating their 
figures, but the footing of one side evidently represents the total 
amount of the vouchers exchanged. The highest bank number repre- 
sented above being eighty-two, the natural inference would be that 
this was the number of members in the Clearing-house. An inspec- 
tion of the proof will, however, show that there are eighteen missing 
numbers, leaving but sixty-four members at the date given. The 
missing numbers represent banks which were once members, but 
are so no longer, most if not all of them having failed or dis- 
continued business. The number eighty-two represents the total 
number of members that have ever belonged to the Clearing-house. 
The failure of the Marine National Bank makes another missing 
number, leaving only sixty-three members, of which sixty-two are 
National or State banks, and one the United States Assistant 
Treasurer at New York, who joined the Clearing-house in 1878. 
The Assistant Treasurer is almost uniformly debtor to the Clearing- 
house, and rarely receives a balance from the associated banks. 



HOW CLEARTNGS ARE MADE. 233 

New York Clearing-house Proof, Thursday, January 17TH, 1884. 



Ba?iks. 



Due Clear- 
ijig-house. 



Banks. Dr. Banks. Cr , 



1 B'k of N.Y. Nat'l Bk'g. Ass'n. 

2! Manhattan Company 

3' Merchants' National Bank. 
4 

5 
6 

7 



Mechanics' National Bank 

Union National Bank 

Bank of America 

Phenix National Bank 

National City Bank 

10 Tradesmen's National Bank. . . 

11 Fulton National Bank 

12 Chemical National Bank 

13 Merchants' Ex. National Bank. 

14 Gallatin National Bank 

15 Nat'l Butchers & Drovers' B'k. 

16 Mechs. & Traders' Nat'l Bank. 

17 Greenwich Bank 

18 Leather Manufac. Nat'l Bank. 

19 Seventh Ward National Bank. 

20 Bank of the State of New York. 

21 American Exch. Nat'l Bank. . . 
23 National Bank of Commerce. . 
25 National Broadway Bank 

27 Mercantile National Bank 

28 Pacific Bank 

29 1 National B k of the Republic. . 

30 Chatham National Bank 

31 People's Bank 



Bank of North America 

Hanover National Bank 

Irving National Bank 

Metropolitan National Bank... 

National Citizens' Bank 

Nassau Bank 

Market National Bank 

St. Nicholas Bank 

Nat'l Shoe & Leather Bank. . . 

Corn Exchange Bank 

Continental National Bank 

Oriental Bank 

Marine National Bank 

Imp. & Traders' Nat'l Bank. . . 

National Park Bank 

Wall Street National Bank 

North River Bank 

East River National Bank 

Fourth National Bank 

Central National Bank 

Second National Bank 

Ninth National Bank 

First National Bank 

Third National Bank 

N.Y. National Exch. Bank.... 

Bowery National Bank 

New York Co. National Bank. 

German-American Bank 

Chase National Bank 

Ass't Treas. U. S. at N. Y 

Fifth Avenue Bank 

German Exchange Bank 

Germania Bank 

United States National Bank.. 

Lincoln National Bank 

Garfield National Bank 

Fifth National Bank 



240,166 60 



72,773 87 



100,768 39 

363.755 14 
768,506 78 
350,350 00 

20,378 71 
2,879 28 

i7i, 6 77 53 
302,353 98 
118,407 94 



18,533 68 
49,085 42 

57,569 69 

982,829 90 

7,773 16 

23,407 05 

73,039 08 

3,o55 80 



79,083 87 

495,589 87 

26,098 22 

232,579 90 

7i,549 58 

70,604 13 
13,861 23 

29,406 91 



8,471 12 
349,169 67 

30,811 55 



555,426 59 

145,288 58 

4,992,040 48 

1,558,990 98 

391,230 71 

3,953,478 88 

355,740 06 

295,991 67 

327,909 22 

3,172,963 98 

361,734 69 

2,238,239 44 

5,312,533 22 

205,107 29 

976,559 38 

3,758,949 54 

3,878,212 46 

5,967,092 97 

191,849 61 

60,291 80 

9,649,314 97 

1,257,022 39 : 

387,803 45 J 

960,685 27 i 

4,307,775 00 

1,207,505 86 

236,562 71 

229,831 48 

187,623 38 

3,087,088 42 

529,928 31 

i,i57,77i 97 i 

174,925 37 i 

204,151 12 J 

191,562 14 I 

2,375,331 70 I 

175,124 66 j 

50,190 04 j 

96,509 06 j 

8,041,705 30 

2,500,726 63 j 

3,797,522 36 ! 

3,576,107 39 ! 

8,436,107 93 

2.815.333 78 

3,297,323 04 ; 

5,040,416 87 
282,296 79 
516.945 63 

1,838,598 47 
479,168 18 

2,843,717 01 
144,180 40 
44,478 91 

99,738 66 

1,406,323 07 

174,674 69 

13,981,992 88 

4,371,989 88 

5,682,807 77 

576,078 07 

1.262.334 29 
185,452 43 

2,534,i68 75 



640,226 

212,612 

5,019,117 

1,621,001 

442,737 

3-713.312 

370,645 

339,9i8 

346,296 

3,100,190 

465,735 

2,243,398 

5,6i5,593 

104, 338 

612,804 

2,990,442 

3,527,862 

5,995,624 

171,470 

57,412 

9,477,637 
954,668 

269,395 

996,475 

4,423,944 

1,188,972 

241,168 

180,746 

245,019 

3,215,685 

472,358 

174,942 

167,152 

180,744 

118.523 

2,821,885 

206,311 

47,!34 

*57i"9 

9,106,865 

2,857,928 

3,917,726 

3,680,171 

8,458,096 

2,736,249 

3,638,397 

4,544,827 

4", I 34 

490,847 

1,606,018 

407,618 

2,938,415 

73o76 

30,617 

121,461 

1,829,143 

i45, 2 67 
13,988,451 

4,520,951 

6,269,436 

567,606 

9 x 3, l6 4 

208,589 

2,503,357 



Due Banks. & 



84,799 
67,323 




103,980 



303,059 



28,531 09 19 



35,79o 
116,169 

4,606 

57,396 
128,597 



446,553 
3M86 



23 

25 
27 
17 28 
75 29 
- 3o 
22 31 
- 32 



14 34 

- 35 

- 36 

- 40 
42 

- 43 
85 44 
67 45 

47 



62 


60,610 56 


4Q 


27 


1,065,159 97 


5o 


13 


357,201 50 


53 


81 


120,204 45 


54 


46 


104,064 07 


56 


40 


21,988 47 


58 


91 





59 


7« 


34i,o74 74 


Or 


00 




02 


69 


128,837 90 


03 


41 





04 


S7 





05 


60 





06 


45 


94,698 44 


07 


27 





jo 


68 





71 


32 


21,722 66 


72 


74 


422,820 67 


74 


78 





75 


65 


6,458 77 


76 


88 


148,962 00 


77 


01 


586,628 24 


78 


95 





10 


6 j 





80 


21 


23,^6 78 


8l 


20 





82 



■5, 134,538 05 139,096,548 03 139,096,548 03 5,134,538 05 



234 PRACTICAL BANKING. 



CHAPTER V. 
HOW OUTSIDE BANKS MAKE CLEARINGS. 

In addition to the banks which are members of the Association, 
most of the other New York City banks effect their exchanges 
through the Clearing-house by the agency of some bank that is a 
member. The bank for which the clearing is done is required to 
keep an adequate fund on deposit at the clearing bank, both as a 
compensation for the service rendered, and as a guarantee against loss. 
The vouchers to be cleared are sent every morning or oftener to 
the clearing bank, and are classified and distributed among the ex- 
changes of the latter as if received by it on deposit. The return 
exchange is also received by the clearing bank with its own 
exchanges, as if payable by it, and after being charged to the bank 
for which the clearing is done, is transmitted to it as speedily as 
possible, usually by messengers dispatched by the latter directly 
after the clearing, in case of the return of checks for want of 
funds or other reasons, the matter would naturally be adjusted 
through the agency of the clearing bank. The regulations of the 
New York Clearing-house provide, that " whenever any member of 
the Association shall send through the Clearing-house the ex- 
changes of any bank or banks in the city or vicinity, who are not 
members, such sending shall, ipso facto, and without other notice, 
constitute said member the agent for said bank or banks at the 
Clearing-house; and said member shall be liable in the premises 
the same as for its own transactions, and its liability in all such 
cases shall continue until after the completion of the exchanges of 
the morning next following the receipt of notice of discontinu- 
ance of such agency." A similar regulation is in force at New 
Orleans. 

At Boston the Clearing-house embraced, in January, 1884, the 
operations of twenty-four banks in the vicinity which were not 
members; at Pittsburgh forty-six, and at St. Louis four. At Boston, 
hanks outside availing themselves of the privileges of the Clearing- 
house must pay towards its expenses a sum to be annually deter- 
mined by the Clearing-house committee. At some of the Clearing- 
houses, members are not allowed to make the exchanges of any 
bank outside. This is the case at Indianapolis, Lowell and 
Worcester. 



HOW OUTSIDE BANKS MAKE CLEARINGS. 235 

A plan for clearing gold checks was adopted February 14, 1872, 
and the exchange of such checks commenced in March following 
and was continued until the resumption of specie payments, Janu- 
ary 1, 1879. This exchange was kept distinct from the exchange of 
currency checks, but took place at the same time and place and 
was conducted in the same way. The total of gold clearings dur- 
ing this period of nearly seven years was $ 14,066,282,911.94, and 
the balances paid in gold or gold certificates amounted to $2,236,- 
317,602.24, or 15.9 per cent, of the clearings. 



236 PRACTICAL BANKING. 



CHAPTER VI. 
PAYMENT OF BALANCES. 

The exchanges being completed, the next step is the payment of 
balances. At New York the balances must be paid by the debtor 
banks to the Clearing-house between 12% and 1% o'clock, P. m., 
either in actual coin, United States legal-tender notes, or in United 
States or Clearing-house certificates. At 1% o'clock, or as soon 
thereafter as the accounts can be made up, the creditor banks re- 
ceive the balances from the manager at the same place, provided all 
the balances due from the debtor banks have been paid. Should 
any bank make default in the payment of its balances at the proper 
hour, the amount of that balance must be immediately, on requisi- 
tion from the manager, furnished to the Clearing-house by the 
several banks exchanging with the defaulting bank in proportion 
to their respective balances against that bank resulting from the 
exchanges of the day. The amounts so furnished constitute claims 
against the delinquent bank only, the Clearing-house being in no 
way responsible. The defaulting bank is immediately suspended 
from the Clearing-house. At several of our American Clearing- 
houses the regulations provide that until the settlement is completed 
and balances are paid the exchange shall be in trust only, that the 
vouchers delivered at the Clearing-house shall, until that time, re- 
main the property of the bank presenting them, and that in case of 
default by any member in paying its balances, such vouchers shall 
be returned unmutilated to the banks from which they were received. 
Some recent complications at New York, arising from the failure of 
the Marine National Bank and of Grant and Ward, suggest the 
advisability of some similar regulation there. It may be stated 
here that the operations of the Clearing-house have received legal 
recognition, and a presentation of a demand through the Clearing- 
house is a legal presentation by virtue of custom among bankers 
and merchants. 

Errors in the exchanges, and claims arising from the return of 
checks, or from any other cause, are adjusted directly between the 
banks who are parties to them, and not through the Clearing- 
house, the association being in no way responsible for them. 

As the banks severally pay their balances the manager gives each 
a receipt in the following form : 



PAYMENT. OF BALANCES. 237 



No. 6. 






New York Clearing-house, 
January 17, 1884. 


Received from the Bank of 


America Two hundred and forty thou- 


sand one hundred and 


sixty-six ^ 


dollars in full for balance due the 


associated banks. 








$240,166.60. 






w Manager. 



Each bank keeps a current ledger account with the Clearing-house, 
charging it with all money or vouchers sent, and crediting it with 
all that is returned ; and this receipt is charged as a voucher on 
the books of the paying bank. The messengers also give to the 
manager, in a book with suitable forms prepared for that purpose, 
receipts for all balances delivered to them. It is only for a period 
of about one hour, while receiving and paying the balances, that 
the Clearing-house has the custody of any money, and during that 
time only as trustee, receiving from one to pay another. 

Reclamations for errors and deficiencies, in specie or United States 
legal-tender notes, received at the Clearing-house, contained in bags 
or packages, sealed and marked in conformity with the rules of the 
Clearing-house, must be made by one o'clock on the following day 
by the receiving bank against the bank whose mark the sealed 
package bears. Notice of such error must be sent immediately upon 
discovery, the Clearing-house not being responsible for the contents 
of such bags or packages. Serious difficulties recently arose at New 
York in a matter of this kind, growing out of the failure of the 
Marine National Bank. On the sixth of May, 1884, this bank en- 
closed in the usual manner in a sealed envelope, marked with the 
aggregate amount, containing as items constituting its claims upon 
the First National Bank for exchange through the Clearing-house, 
three checks drawn by Ferdinand Ward upon the First National 
Bank, amounting together to $215,000. As Ward at that time had 
in the First National Bank only $2,213.98, the latter refused the 
checks. The Marine National Bank having in the meantime failed, 
after paying its balance of $550,000 at the Clearing-house, the First 
National Bank informed the Clearing-house that the checks were 
not good and claimed to be reimbursed by the associated banks or 
the Clearing-house. 

A special committee of the Association, appointed to consider 
the subject, decided against this claim, but the affair resulted in the 
adoption, June 4, 1884, of two amendments to the Constitution of 
the Association. One of these authorizes the Clearing-house com- 
mittee to examine any member of the Association, and to require 
security for the payment of its balances to the Clearing-house ; the 
other provides that in case of refusal or inability of any bank to 
refund the amount of checks, drafts, or other items returned 



238 PRACTICAL BANKING. 

as not good, the bank holding them may, before one o'clock, re- 
port to the manager the amount of the same, and the manager, 
with the approval of the Clearing-house committee, is to take from 
the settling sheet of both banks the amount of such checks or 
other items so reported. This will, of course, increase any balance 
due from the presenting bank, for which all the banks having bal- 
ances against it are responsible. The Clearing-house has also re- 
cently taken action on another matter which has been agitated for 
many vears, namely, the payment of interest on deposits. On the 
recommendation of a committee appointed June 4, and subsequently 
increased, the associated banks on July 29, 1884, adopted, subject to 
the ratification of the banks individually, two amendments, one for- 
bidding any member to pay interest on, or allow compensation for, 
deposits after January 1, 1885, the other providing that no checks 
shall pass through the Clearing-house except those drawn on mem- 
bers. Under this amendment, if it shall come in force, banks out- 
side could still clear on one side through members — that is, the 
checks and other claims on the members — but the Clearing-house 
would be closed against checks drawn on banks outside, and these 
checks would be less current. The outside banks may thus be forced 
to become members, and bear a share of the expense from which 
they have hitherto, to the prejudice of the members, escaped. 



CLEARING-HOUSE CERTIFICATES. 239 



CHAPTER VII. 
CLEARING-HOUSE CERTIFICATES, 



The labor, responsibility and risk attending the handling of the 
funds used in paying the balances have been greatly abridged by 
the use of certificates. These are of three kinds — Clearing-house gold 
certificates, United States gold certificates, and United States legal- 
tender certificates. Clearing-house gold certificates are issued in ac- 
cordance with a plan adopted in September, 1853, against gold de- 
posited with one of the associated banks, and are of the denomina- 
tions of $1,000, $5,000 and $10,000. They are numbered, regis- 
tered and countersigned by the proper officer, and are endorsed 
when paid into the Clearing-house by the paying bank, and when 
paid out are charged to the receiving bank, so that they can al- 
ways be traced by the records. They are to be used only in settle- 
ments between the banks, and any member of the Clearing-house 
which shall pay or deliver to any party, not a member, any such 
certificates, is subject to a fine of one hundred dollars. The Bank 
of America was selected as the depository of the associated banks 
at the time the Clearing-house was established. The issue of legal- 
tender notes by the Government and the suspension of specie pay- 
ments reduced all ordinary settlements to a paper basis, and the 
issue of Clearing-house certificates was discontinued. In 1879, after 
the resumption of specie payments and the discontinuance of fur- 
ther issues of gold certificates by the Government, the Clearing- 
house gold certificates were revived, the Bank of America being 
again selected as the depository. The first of the new certificates 
were issued October 14, 1879. The amount of these certificates out- 
standing June 30, 1 88 1, was $41,858,000, but has since been reduced. 
United States gold certificates were authorized by Act of March 3, 
1863, and were used for Clearing-house purposes soon after the 
passage of the National Bank Act. The first issue was made No- 
vember 13, 1865. They are issued against deposits of gold coin 
and bullion made with the Secretary of the Treasury, in denomina- 
tions of twenty dollars and upwards, corresponding with the de- 
nominations of United States notes. Further issues were discon- 
tinued December 1, 1878, but were resumed under Act of July 12, 
1882, and they have, in part, superseded the gold Clearing-house 



240 PRACTICAL BANKING. 

certificates. The United States legal-tender certificates are issued 
under Act of June 8, 1872, against deposits of legal tenders made 
with the Secretary of the Treasury by any National banking asso- 
ciation, in amounts of $10,000 and upwards, and are of denomina- 
tions not less than $5,000. They are payable on demand in United 
States notes at the place where the deposits were made, and are 
counted as part of the lawful money reserve of the National banks. 
Before the resumption of specie payments they were much used in 
the Clearing-house settlements, being frequently called Clearing- 
house legal-tender certificates, «and the amount outstanding June 30, 
1875, was $59,045,000. The amount now in use is comparatively in- 
significant, and they appear only to a small extent in the Clearing- 
house settlements. The amounts and percentages paid in coin, cur- 
rency and certificates in the Clearing-house settlements at New 
York, in 1883, were as follows: 

Paid in gold coin $197,00000 .... .0 

United States gold certificates 564,213,000 00 .... 36. 1 

Clearing-house gold certificates 990,925,00000 .... 63.3 

United States legal-tender certificates.. 1,575,00000 .1 

Legal tenders and change 7,768,09649 .... .5 

$1,564,678,09649 100. o 

It will be noticed that only one-half of one per cent, of the bal- 
ances was paid in actual cash, and this amounts to only one-fiftieth 
of one per cent, of the clearings. 

The system of paying Clearing-house balances wholly or partially in 
certificates has been adopted at Boston, Philadelphia, Chicago, Balti- 
more, San Francisco, Milwaukee, and St. Paul. At Cincinnati, St. 
Louis, New Orleans, Louisville, Columbus, and Memphis, the manager 
of the Clearing-house issues checks or certificates on the debtor in 
favor of the creditor banks, which must be paid to the satisfaction 
of the latter. The form used at St. Louis, which will serve to il- 
lustrate, is as follows: 



$5,000. St. Louis Clearing-house, July 18, 1884. 

In the settlement of the balances of the Exchanges made between mem- 
bers of this Association to-day, there is due from ( No. 6) the Commer- 
cial Bank, five thousand dollars, payable on demand to ( No. 8 ) the Fifth 
National Bank. 

Not transferable, and without recourse \ 
upon any other member of this Associa- V 
tion after two o'clock p. m. of this day. » E - Chase, Manager. 



The forms are different at different Clearing-houses, but their 
purport is substantially the same in imposing upon some debtor 
bank the duty of paying a certain sum to some creditor bank in 
settlement of the balances. In this case the payment of balances, 



CLEARING-HOUSE CERTIFICATES. 241 

as well as the exchange of vouchers, is a matter settled exclusively 
between the banks, the Clearing-house handling no money and hav- 
ing nothing to do with the matter, except to apportion the pay- 
ments. 

At Providence, Hartford, New Haven, Worcester, Springfield, 
Lowell, Syracuse, and to some extent at Portland, Maine, balances 
are paid by checks on New York or Boston, except where they are 
for small amounts. This plan is similar in principle to that pre- 
vailing in the British and other European Clearing-houses. The 
handling of cash is entirely dispensed with, so far as checks drawn 
on some common depository are used. The check issued in these 
cases would be forwarded, by the creditor bank to its New York 
or Boston correspondent, which might also be the depository of 
the debtor bank. If not, the check would be either collected di- 
rectly, or through the New York or Boston Clearing-house. 



242 PRACTICAL BANKING 



CHAPTER VIII. 

THE RECORDS KEPT AND THEIR USES. 

The payment of the balances being completed there remains the 
duty of making up a record of the day's business for preserva- 
tion and future reference. This is a matter the importance of 
which is sometimes overlooked. However small the transactions of 
a Clearing-house may be they are destined to be of value in the 
future as a means of measuring growth, if nothing else. There are, 
too, many problems of interest to bankers, on which light would 
be thrown by a study and comparison of Clearing-house data care- 
fully and intelligently prepared. In the interests of philosophic in- 
quiry it is worth while to preserve all facts relating to operations 
of so interesting a character as those of the Clearing-house. At 
New York, where the volume of business justifies it, very full and 
elaborate records are kept, showing every important fact connected 
with the business, and it is possible to learn there many particulars 
of which no record is preserved at other Clearing-houses. A ledger 
is kept in which are posted the daily footings of the proof, " ex- 
hibiting a continuous history of the aggregate dealings of the 
banks." The entire proof, also, is transferred into a book kept for 
that purpose. " In like manner, the daily debit and credit exchange 
of each bank is posted to its account, and shows not only the ex- 
tent of its business, but measurably its character also. This is the 
most essential of all the records. It is that which brings the banks 
separately within the supervision and control of the Clearing-house 
— a necessary complement of the joint responsibility created by the 
organization." * If the daily records of its transactions show that 
its reserves are undergoing constant depletion without any known 
source of replenishment, its credit at the Clearing-house is affected^ 
and it may be subjected to an examination by a committee con- 
sisting of the Clearing-house committee and a committee of five 
bank officers, which joint committee has power to suspend any 
bank from the privileges of the Clearing-house, " in case of ex- 
treme emergency," until the pleasure of the Association is ascer- 
tained. To effect a suspension a majority of each committee must 

* Gibbons' Banks of New York and the Panic of 1857. 



THE RECORDS KEPT AND THEIR USES. 243 

be present and the vote must be unanimous. The Association 
alone has the power of expelling a member. 

A summary book is made up from the daily postings, showing the 
total receipts and payments by each bank for the week, and also 
for the month and year. The adverse balances of one period may 
be compensated by the favorable balances of a succeeding period, 
and thus the state of the reserve of each bank is followed up with 
unfailing precision. " If at the end of a month it appears that a 
bank has paid in to the House one million of dollars more 
than it has received, and if it has no foreign sources of replenish- 
ment, the conclusion is that it has supplied itself by purchase. If 
the same result should be shown at the end of another month, 
without signs of recuperation, and so on continuously, it becomes 
evident that the institution is carrying a forced average of loans, and 
it will receive a call from the committee. . . . But this extreme 
case is most unlikely to happen. The credit that every member 
derives from the Association is too valuable to be cast off or 
treated with lightness. The action of the Association is too im- 
partial and just to give offence, or to admit excuse for disregard- 
ing its advice." 

" A positive principle, or rule of financial government, has been 
demonstrated by this action of the Clearing-house on the city 
banks, that is, the restriction of loans by the necessity of maintain- 
ing a certain average of coin [ or legal tenders ] from resources within 
the bank. Borrowing from day to day will no longer do. It cannot 
be concealed. The records will show conclusively whether the aver- 
age is kept up by a healthy business, or by a forcing process."* 

"The limitation imposed does not stop at the bank loans, but 
passes through them into the commercial system. The loans rest 
on the coin (or legal tender) average, this rests on the deposits, 
and the deposits rest on the means of trade. The Clearing-house 
has not created any new dependence of this kind, but it has brought 
the facts into a manageable shape, and established something like 
an axiom in the banking business. It is not a mere arbitrary re- 
quirement that a specific average of coin (or legal tenders) must 
be maintained, but it is the constitution of that average as a re- 
sult, and the control of it by an organization which permits no 
escape and works no injustice — and what that organization is for 
the City of New York, the city is for the country; a restrictive 
power over the general currency of trade must be exerted through 
this channel to its remotest sections." 

Weekly publication of bank statements had been required by law 
even before the establishment of the Clearing-house, but many ways 
of doctoring such statements were devised, so that the objects of 
the law were only partially realized. Each bank in the Clearing- 

* Gibbons' Banks of Ntiu York and the Panic 0/ 1857. 



244 PRACTICAL BANKING. 

house is required to furnish to the manager every Saturday, on or 
before 12 o'clock m., a statement showing the average amount of 
loans and discounts, of specie, of legal-tender notes, of deposits, and 
of circulation, for the preceding week. These statements are tabu- 
lated by the manager and given to the public. They have this ad- 
vantage over the statements made under the law, that the daily 
operations of the Clearing-house furnish a means of testing their 
accuracy. Deception may still be practised, but it is likely sooner 
to come to light than it would but for the searching test afforded 
by the daily settlements. 

" The improvement in the character of its loans is consequent 
upon the fact, that if a bank becomes embarrassed by their impru- 
dent extension, it can get a good class of paper rediscounted, and 
thus obtain immediate relief; whereas if its discounted paper is of a 
low grade, or if the assistance required is to help the directors 
only, and not its dealers generally, it loses sympathy and reputation. 
The character of its discounted bills is, therefore, its sheet anchor 
in a storm. In fact, the credit of the Clearing-house Association 
would itself be impaired if it should allow one of its members to 
fail from inability to convert good assets into cash funds."* One 
of the ways by which relief is afforded in such cases is by the 
issue of Clearing-house certificates against a deposit of securities, 
such certificates to be available in the settlement of balances at the 
Clearing-house. In the late crisis at New York some % 25,000,000 of 
such certificates were thus issued to different banks against accepted 
securities, certificates in no case being issued to an amount exceed- 
ing seventy-five per cent, of such securities. This measure afforded 
substantial relief, and the certificates were mostly withdrawn within 
sixty days. The same plan was tried with good results in 1 861-2 
and in 1873. 

Other records of Clearing-house operations may be made possessing 
practical value. Says Col. W. M. Grosvenor, in a paper which was 
read at the Convention of the American Bankers' Association in 
1882 : " In the mere observation of the course of exchanges in dif- 
ferent sections and at different localities, many business men affirm 
that they have gained important advantages. They have been 
warned in season, when the business of a distant city was being 
diverted to others, or depressed by social or political influences. 
They have been advised in season, by gradually expanding ex- 
changes, that industry in a distant region was reviving, and prompt 
effort in that direction has been rewarded. Investors have been 
guided in the choice of securities by evidence of rapid growth in 
the business of cities. Lenders have been warned by unnatural 
expansion and violent fluctuation in the exchanges at a particular 

* Gibbons. 



THE RECORDS KEPT AND THEIR USES. 245 

city, that excessive speculation was approaching its climax there, 
so that loans were ' extra-hazardous.' Information of more general 
importance has repeatedly been obtained. The inquiry is yet in its 
infancy, and comparatively little is known of the meaning of rec- 
ords which, in due time, will enable men to note the coming of 
many financial storms as surely as the march of an area of low 
barometer across the country is traced by the signal service." 

At the last meeting (1884) of the Bankers' Association, Mr. 
Comegys, President of the Philadelphia National Bank, suggested 
that the Clearing-house might keep another record, with a brief 
explanation of which we shall close this chapter. The risks and 
losses growing out of the purchase of one-name paper are well 
understood, especially among bankers. To lessen the risk thus in- 
curred, he proposed that a credit-ledger should be opened in the 
Clearing-house of any city, in which should be kept a record of 
the names of payers and endorsers, and dates of maturity of all 
notes amounting to one thousand dollars, or more, held by the 
banks, purchased of brokers. The reports of such paper, he further 
proposed, should be made to the Clearing-house anonymously, and 
information concerning such names should be given only to mem- 
bers of the Clearing-house. Large sums of money, he declared, 
might be saved to banks by means of this information. 



246 PRACTICAL BANKING. 



CHAPTER IX. 
FINES. 



The minor delinquencies of the banks in their relations with the 
Clearing-house are dealt with by means of fines. The following 
scale of fines at New York will serve as an illustration : 

First. — All errors on the Credit side of the Settling Clerk's Statement {i.e. in 
the amount brought) whether of footing or entry, and all errors causing 
disagreement between the credit entries, the check tickets, and the ex- 
change slips each $3 00 

Second. — Errors in making the Debit (i. e. the amount received) entries, each $2 00 

Third. — Errors in the Tickets reported to the Clearing-house, causing dis- 
agreement between the balances and aggregates each $2 00 

Forcrth. — Errors in footing the amount received $100 

Fifth. — Disorderly conduct of Clerk or Porter, at the Clearing-house ; or dis- 
regard of the Manager's instructions each offence $ 2 00 

Sixth. — Clerk or porter failing to attend punctually with statements and 

tickets complete at the morning exchanges each $ 2 00 

Seventh. — Debtor banks, failing to appear to pay their balances before \y 2 

o'clock P. M $ 3 00 

Eighth. — Errors in delivery or receipt of exchanges each $ 1 00 

Forty-five minutes are allowed for the proof. For all errors re- 
maining undiscovered at 11. 15 a. m. the fines are doubled, and at 
12 m. quadrupled. Once in each month the manager reports to each 
bank the amount of fines against it for the preceding calendar month, 
with the total amount of fines from all the banks and the num- 
ber of banks fined. Clerks are required to conduct themselves in 
a quiet and orderly manner, to be attentive to their duties, and to 
remain at their desks while the proof is being made, and until it 
is announced. Loud conversation, or anything tending to create dis- 
turbance or confusion, is noc permitted. The fines, though not 
large considering the amounts involved, are sufficient to make it 
an object for banks to employ clerks who are rapid and accurate 
in figures, though there are very marked differences of aptness in 
this particular. 



HISTORY OF THE NEW YORK CLEARING-HOUSE. 247 



CHAPTER X. 
HISTORY OF THE NEW YORK CLEARING-HOUSE. 

The first proposition for the establishment of a Clearing-house in 
New York was made by Albert Gallatin in 1841. To Mr. Geo. D. 
Lyman, the first manager of the New York Clearing-house belongs 
chiefly the credit of systematizing its details and planning its rec- 
ords in its earlier history. Mr. Lyman thus concisely sums up the 
economy of time and labor effected by the Clearing-house: 

"On the day when the Clearing-house began business, about 
twenty-seven hundred open, active accounts on the ledgers of the 
associated banks were balanced — the most of them for the first 
time,* and all of them finally. The business which had rendered 
necessary this large number of accounts was thenceforth accom- 
plished more quickly, with less annoyance to bank officers, and 
with greater safety to all concerned. The results may be briefly 
enumerated as follows : 

" First. — The condensation for each bank of forty-eight balances 
into one, and the settlement of that balance without a movement 
of specie. 

" Secondly. — The avoidance of numerous accounts, entries and 
postings. 

" Thirdly. — Great saving of time to the porters and of risk in 
making exchanges and settlements from bank to bank. 

" Fourthly. — Relief from a vast amount of labor and annoyance 
to which the great army of cashiers, tellers and bookkeepers were 
subjected under the old system. 

'• Fifthly. — The liberation of the associated banks from all in- 
jurious dependence on each other. 

" Sixthly. — The absolute facility afforded by the books of the 
Clearing-house for knowing at all times the management and 
standing of every bank in the Association." 

Mr. Lyman remained manager of the Clearing-house until 1864, 
a period of more than ten years. On the twenty-second of August 
in that year he was succeeded by the present manager, Mr. William 
A. Camp, who has brought the details of the business to a per- 

* "The practice of the banks had been to draw settlement-checks on each other for even 
thousands of dollars near the balance due, and the account was never settled to a point." 



248 PRACTICAL BANKING. 

fection not previously attained. Mr. Camp was born at Durham, 
Connecticut, Sept. 23, 1822, was appointed in 1855 discount clerk 
in the Importers and Traders' Bank of New York (his first bank- 
ing experience ), and was made first teller of the Artisans' Bank 
in 1S56. In June 1857 he was made assistant-manager of the 
Clearing-house, so that he has now been connected with the es- 
tablishment twenty-seven years, twenty years of that period as mana- 
ger. To executive ability of a high order, he unites unusual accu- 
racy and promptness in the despatch of business, as well as a wide 
acquaintance, both theoretical and practical, with financial subjects. 
It speaks volumes for the care and scrupulous accuracy with which 
the business has been conducted, that in the entire history of the 
Clearing-house, extending over nearly thirty-one years, its trans- 
actions have always balanced to a cent. The only instance on 
record of an error in any statement emanating from it occurred a 
few years ago in the weekly bank statement, and this was due to 
an error of one of the clerks in transcribing the figures. In making 
the entries, the officials at the Clearing-house and their subordin- 
ates use ink only. The clerks sent by the banks may at their 
option make their entries in pencil. 

The first day's clearing at New York, October 11, 1853, was $23,- 
938,182.25. The total of its gold and currency clearings to Decem- 
ber 31, 1883, was $695,304,252,496.30, and of the balances, $30,250,- 
800,308.61. The largest transactions (clearings and balances com- 
bined) in any one day were $295,821,422.37, February 28, 1881, 
when the clearings amounted to $288,555,981.58. The largest ex- 
change ever brought to the Clearing-house by any bank was on the 
same day, $31,772,391.45, brought by the Bank of New York, its re- 
turn exchange being $31,512,015.47. The largest balance paid by 
any bank was $10,585,471.31, November 17, 1868. The smallest bal- 
ance ever paid by any bank was one cent, September 22, 1862. The 
smallest balance ever paid to a bank was ten cents, November 16, 
1863. No bank ever came out exact without a balance either way. 
The largest amount ever cleared in one year was in 1881, $49,376,- 
882,882.54, and the smallest in any whole year was in 1858, $5,376,- 
151,036.92. Formerly bank notes were included in the clearings, 
though to a less extent after the establishment of the National 
banking system than before. The trouble of assorting the country 
bank notes gave general dissatisfaction. "The Park Bank then un- 
dertook, for a consideration of about five thousand dollars a year, 
to assort the country bank notes of all the other banks in the city, 
and this arrangement was prolonged for nearly two years, the plan 
of working meanwhile gradually improving in efficiency, when it was 
interrupted and superseded by the establishment of the Redemp- 
tion Bureau in the office of the United States Treasurer at Wash- 
ington, for the purpose of redeeming the notes of all National 



HISTORY OF THE NEW YORK CLEARING-HOUSE. 249 

banks."* Bank notes may now be included in the exchanges, but, 
in practice, are not. The paper exchanged now consists of checks, 
drafts and certified notes. 

Banks desiring to become members of the Clearing-house Asso- 
ciation must apply to the committee on admissions, who make such 
examination of the bank as they deem necessary. The personal 
character and standing of its managers is also considered. The bank 
may be admitted to the Association by a three-fourths vote (by 
ballot) of the members present at any meeting, on such conditions 
as three-fourths of those present may deem expedient. The new 
member must assent to the Constitution and pay an admission fee, 
varying from $1,000, where the capital does not exceed $500,000, 
up to $7,500, where the capital exceeds $5,000,000. Any member 
increasing its capital must pay an additional sum corresponding 
with these rates. A bank may withdraw from the Association at 
pleasure, first paying due proportion of all expenses incurred, and 
signifying its intention to withdraw to the Clearing-house commit- 
tee. The expense of printing for the several banks is apportioned 
equally among them. The other expenses are met by an assess- 
ment of $200 on each bank, and the balance necessary above that 
amount pro rata according to the average amount sent to the Clear- 
ing-house for the preceding year. A fine of three dollars is imposed 
on any bank not represented at roll call at any duly called meet- 
ing without reasonable excuse. Any member of the Association 
guilty of participation in any scheme for withdrawing legal tenders 
from use may be suspended from the Clearing-house. 

* Kinahan Cornwallis in International Review for Sept.-Oct., 1876. 



250 PRACTICAL BANKING 



CHAPTER XT. 

CLEARING-HOUSES OUTSIDE OF NEW YORK. 

The Boston Clearing-house, like that of New York, has had but 
two managers, Mr. Henry B. Grove, from the organization of the 
Clearing-house in 1855 to his death in April, 1877, and Mr. Na- 
thaniel G. Snelling, the present incumbent, from that date until the 
present time. Mr. Snelling was assistant manager from 1861 to 
1877, and has therefore been connected officially with the Clearing- 
house for twenty-three years. The clerks and porters, as well as the 
manager, give bonds. The daily routine is substantially the same at 
Boston as at New York. The hour for clearing is ten o'clock, a. m. 
The debtor banks-are required to pay their balances by 12.15 p » M -» 
and the creditor banks receive them at 1% o'clock P. M. Thirty 
minutes are allowed for the proof and for delivering check tickets, 
and for each fifteen minutes' detention beyond that time two dol- 
lars are added to the fine incurred. About half an hour is re- 
quired to prepare the exchanges for the Clearing-house. The mes- 
sengers complete the delivery of the packages at the Clearing- 
house in about five minutes. They receive the return clearings in 
about ten or fifteen minutes, and are generally back at their re- 
spective banks by fifteen or, twenty minutes past ten. The paying 
teller completes the examination of the return exchange usually by 
eleven o'clock, and then delivers the checks and vouchers to the 
bookkeeper, who enters them on his books in ink of a different 
color from that used in charging those paid over the counter. 
Usually the bank sending paper to the Clearing-house marks its 
number on the back of each check or voucher in blue ink, but 
the practice is not uniform. Although the check tickets are usu- 
ally prepared at the bank and delivered by the messengers, this is 
not obligatory. It is sufficient if the check tickets are all de- 
livered before half-past ten o'clock, for failure to do which a fine 
of one dollar is imposed. No failure has ever occurred among the 
banks connected with the Boston Clearing-house, though the Me- 
chanics' Bank (No. 30) never came in, and the Metropolis (No. 
38), discontinued business many years ago. Provision is made in 
the Constitution for making one of the associated banks a de- 
pository of coin against which certificates may be issued. But this 



CLEARING-HOUSES OUTSIDE OF NEW YORK. 25 1 

provision is at present dormant, United States gold certificates being 
used instead. In case of default by any bank in paying its balances 
at the Clearing-house, the Constitution, in addition to provisions 
similar to those of the New York Clearing-house, provides that 
any bank responding to the manager's requisition for the deficiency 
may have its exchanges with the defaulting bank canceled, and be 
restored to the position in which it stood before the exchange was 
made. Weekly statements are required from the banks, as in New 
York. 

At Philadelphia there are two clearings daily. The first, and 
principal clearing is at half-past eight o'clock, A. M. The balances 
of this clearing are paid in legal tender notes or United States cer- 
tificates, between the hours of eleven and twelve o'clock. A second, 
or " runners' " exchange, is held at half-past eleven, for the settle- 
ment of the items formerly taken to the different banks by the , 
runners, namely, the notes and checks received by the morning 
mail. The balances of this exchange are paid by due bill, which 
goes through the next morning's exchanges. The clearing methods 
are similar to those at New York. Weekly bank statements are 
also published. 

At Chicago the hour for clearing is eleven o'clock daily. Bal- 
ances must be paid by the debtor banks between the hours of 
twelve and half-past twelve, and the creditor banks receive them 
between half-past twelve and a quarter of one o'clock. Balances 
are, by the rules of the Clearing-house, payable in gold coin, legal 
tenders, National bank notes, United States and Clearing-house cer- 
tificates. It is customary, however, for the banks to save the hand- 
ling of actual cash to a greater or less extent by the following ex- 
pedient : A debtor bank sells to some creditor bank New York or 
Boston exchange, and receives from the latter a check or order on 
the Clearing-house, the form of which is printed on green paper, 
and is as follows : 



No Chicago 1S84. 

W. S. Smith, Manager, 

Chicago Clearing-house. 

Pay or order 

Dollars, 

and deduct from balance due us this day. 

$ Cashier. 



The debtor bank delivers this voucher at the Clearing-house in 
settlement of the amount which it represents, and it is available to 
the Clearing-house in settling with the creditor bank without hand- 
ling any cash. At St. Paul a similar usage prevails, the check or 
order on the Clearing-house being printed on light yellow paper. 



252 PRACTICAL BANKING. 

At Chicago all checks and vouchers exchanged at the clearing 
are held in trust only by the member receiving the same until re- 
turned, or the amount thereof paid. In case of failure on the part 
of any bank to pay its balances at the proper hour, it is to return 
such checks or vouchers, without mutilation, to the Clearing-house 
before one o'clock P. M., and if is to receive back the vouchers it 
sent. Elaborate provisions are made for the protection of the asso- 
ciated banks in such cases. The work of clearing, in its various 
stages, occupies about two hours. Thirty minutes are allowed for 
the proof. The paper exchanged is stamped "Paid through the Chi- 
cago Clearing-house to " (name of member clearing same to be here 
inserted), with the date, in lieu of written endorsements, and the 
bank using such stamp thereby makes itself responsible for all items 
so stamped by it, and for all informalities of endorsements thereom 
The business hours of the different members must be uniform, and 
are regulated by the Association. Each member of the Association 
is required to furnish to the manager, as often as five times yearly, 
and at such other times as may be required by the Clearing-house 
committee, a sworn statement of its condition, in the form and 
manner prescribed for the statements of National banks, such state- 
ments to be open to the inspection of the members, but to be 
otherwise confidential. The scale of fines shows some peculiarities, 
among which may be mentioned those for being late at the morn- 
ing exchanges. For the first five minutes, or part thereof, late, the 
fine is $3; for the second five minutes, or part thereof, $10, and 
for being over ten minutes late, $25. Creditor banks are also fined 
$3 in case of failure to take away their balances by 12.45 p. m. All 
fines are collected by the manager at once. The manager may re- 
quire from members the signatures of such persons as are authorized 
to receipt for balances. The expenses of the establishment are 
about $8,000 per annum, assessed upon the banks in a manner simi- 
lar to that at New York. 

At St. Louis the hour for making the exchanges is ten o'clock 
A. M. Each clerk must report the debits against his bank within 
twelve minutes after commencing; for failure to do which the bank 
is fined $2, with two dollars more for every five minutes' additional 
delay. The time required for completing the morning settlement 
varies from fifteen to thirty minutes. At eleven o'clock the manager 
issues his certificates of indebtedness by the debtor on the creditor 
members, the form of which has been already given, each creditor 
bank receiving, on an average, two certificates. The payment of bal- 
ances, which are not handled at all by the Clearing-house, but are 
settled wholly between the banks, occupies from one to one and 
one-half hours. As at Chicago, the exchange and delivery of 
checks at the Clearing-house is in trust only until the debit bal- 
ances are paid, and such checks must be returned unmutilated by 



CLEARING-HOUSES OUTSIDE OF NEW YORK. 253 

any defaulting member. All checks sent to the Clearing-house must, 
in lieu of written endorsement, bear the impress of a uniform 
stamp, showing the name and number of the bank sending it, and 
the date, with the words, " St. Louis Clearing-house." The by-laws 
define proper clearing matter as follows : 

1. All checks or drafts upon, or certificates of deposits, demand or 
matured, of any member of the Clearing-house or any bank clearing 
through any member. 

2. Any other matter specially agreed to by any member, or 
bank clearing through it, until notice is given to the contrary. 

3. Mercantile or other paper payable at any bank shall not be 
cleared against such bank unless authorized by the same. 

4. All unstamped checks will be considered improper matter for 
clearing. 

5. Any bank clearing paper not proper, as aforesaid, shall be fined 
for disregard of instructions. 

Clerks duly authorized may return at the Clearing-house matter 
not authorized according to the foregoing to the clerk of the bank 
clearing it, who must receive and charge his bank with it in his 
debit list. The initiation fee is only $ 25, and the expenses, amount- 
ing to about $6,000, are paid by the members in proportion to 
their clearings. To be eligible as members, banks must have a paid- 
up capital of $150,000. Instead of a "settling clerk's statement" all 
on one blank, each clerk has two statements. One called a " Credit 

List," begins " St Louis Clearing-house 1884, 

from Bank No ....," and contains the exchange 

brought by the bank. It corresponds with the debit column in the 
"settling clerk's statement," as already given. The other statement 
is called the "Debit List," and begins "St. Louis Clearing-house, 

1884, on Bank No " 

It corresponds with the credit column in the settling clerk's state- 
ment. The manager compiles periodical statements showing the 
condition of the banks from returns made by them. While the 
method of paying balances employed at St. Louis saves one hand- 
ling of the funds so paid, it must usually happen that another 
great economy effected by the Clearing-house is lost, namely, the 
settlement of the whole debtor or creditor balance in one item. 
It would be a very remarkable circumstance if the balance due 
from any debtor bank should be exactly the same as the balance 
due to some creditor bank. Whenever it is otherwise, the demand 
due to the one, or from the other, must be divided into two or 
more payments. The relative advantage of one or the other method 
of paying balances must, however, be determined by the circum- 
stances of each Clearing-house. What might be most convenient 
under certain conditions, might be quite inconvenient or imprac- 
ticable under different conditions. The manager and a porter have 
charge of the Clearing-house. 



254 PRACTICAL BANKING. 

The regulations of the San Francisco Clearing-house are very- 
similar to those at New York. As at Philadelphia, there are two 
clearings daily, these being the only Clearing-houses in the country 
having more than one. The hours of clearing are for ordinary- 
days ten o'clock, a. m., and two o'clock, p. m., precisely. At half- 
past two o'clock, p. m., the debtor banks pay their balances to the 
Clearing-house, and at three o'clock, P. M., the creditor banks re- 
ceive their balances at the same place. On Saturdays the ex- 
changes occur at eleven and half-past eleven o'clock, the settle- 
ments being made at twelve. About ten minutes are occupied in 
getting the proof, about thirty minutes in receiving debit balances, 
and about twenty minutes in paying credit balances. United States 
certificates began to be used in paying balances March 5, 1883, and 
Clearing-house certificates June 5, 1883. Formerly the gold bal- 
ances were paid in gold coin, the silver in silver coin, and the 
currency in currency. This was the case before the resumption of 
specie payments. There are no fines or penalties other than sus- 
pension or expulsion. If a bank defaults in the payment of its 
balances, the amount of that balance is furnished to the manager 
in memorandum checks by the banks to which the defaulting bank 
is a debtor, in proportion to the amount due each, and the claims 
of the banks which have balances against the defaulting bank, and 
the claims of the defaulting bank against banks which may, in 
that exchange, have exchanged with it, shall be placed in precisely 
the same position as before the exchanges commenced. New mem- 
bers must pay an initiation fee of $500, as compared with $200 
for the original members. To provide for the annual expenses, each 
bank also pays an annual subscription of $ 1 50, any balance required 
being made up by a pro rata assessment according to the amounts 
cleared by each bank. The work at the Clearing-house is in charge 
of the manager and one clerk. 

At Baltimore the banks make their exchanges daily at the Na- 
tional Union Bank of Maryland, which is the depository of the 
associated banks. The hour for clearing is 8.45 o'clock, a. m. The 
balances are paid by the debtor banks at ten o'clock, either in 
legal-tender notes or certificates, and are received by the creditor 
banks at noon. 

At New Orleans the hour for clearing is nine o'clock, A. M. At 
11.30 o'clock, a. m., or as soon thereafter as the amounts can be 
made up and proved, the creditor banks receive from the manager 
at the Clearing-house in settlement of their balances checks on 
the debtor banks, which checks are not transferable, and are Xo be 
in no case sent through the exchanges. The liability of the asso- 
ciated banks on such checks ceases at two o'clock, p. m., on the 
day of their issue. Any bank unable to pay its balances is re- 
quired to notify the manager and other members of the Association, 



CLEARING-HOUSES OUTSIDE OF NEW YORK. 255 

"and if any bank fails to respond to the manager's checks before 
one o'clock, P. M., such checks are to be returned to the Clear- 
ing-house. The manager at once notifies the other associated banks, 
and strikes from the lists the exchanges of the defaulting member, 
which is required to hold in trust for the other banks the checks 
received from them until called for by them. The manager then 
makes a supplemental adjustment between the other banks, without 
recalling the checks already issued by him upon the responding 
banks. He charges back to them the checks brought by them 
against the defaulting bank, and credits back to them, 1st, the 
checks brought against them by the defaulting bank, and, 2d, the 
amount of the manager's checks issued to them upon the default- 
ing bank. He then issues supplemental manager's checks for the 
settlement of the balances which result from these debits and 
credits. The defaulting bank ceases to be a member of the Asso- 
ciation, and can only be readmitted by a three-fourths' vote of the 
Association as in the case of new members. Each member of the 
Association is required to keep on hand in coin, United States legal- 
tender and National bank notes and sight exchange on New York, 
twenty-five per cent, of its net liabilities subject to check as they 
appear each morning after the exchanges, and twenty per cent, of 
such liabilities in coin, legal tenders, and National bank notes. 
Every member of the Association is required to furnish to the 
Association every Saturday morning a report of its average condi- 
tion for the week ending Friday morning, showing, 1st, specie 
(coin); 2d, United States legal tenders and National bank notes; 
3d, cash items ; 4th, sight exchange on New York ; 5th, foreign 
exchange ; 6th, due from distant banks and bankers ; 7th. loans and 
discounts ; 8th, other cash assets ; 9th, circulation ; 10th, deposits 
(net, after exchanges); nth, due distant banks and bankers, sub- 
ject to check; 12th, other liabilities to banks and bankers; 13th, 
other cash liabilities. Members are required to pay an admission 
fee, and the expenses (except printing, which is shared equally) are 
apportioned according to the average amount of the clearings. No 
exchanges are made with members before a-quarter to ten o'clock, 
A. m., except through the Clearing-house. The exchanges are de- 
livered at the Clearing-house in sealed envelopes. The clerks, as 
well as the manager, must give bonds with sufficient sureties. 
Minute rules prescribe the manner in which bundles of currency 
must be assorted, wrapped up and sealed for greater security when 
designed to be used in paying balances. 

At Cincinnati the routine is substantially the same as at St. 
Louis, the former having served as the model for the St. Louis, 
Louisville and Columbus Clearing-houses. At all of these, except 
St. Louis (as formerly at this, also), the official statements of clear- 
ings and balances represent (or lately did) the total of both sides 



256 PRACTICAL BANKING. 

of the Clearing-house proof, and must be divided by two to get 
the true clearings. The same was formerly the case at Kansas City, 
Milwaukee and St. Joseph. The hour for making the exchanges at 
Cincinnati is two o'clock p. m. At half-past two the manager, in 
settlement of balances, issues his checks or warrants upon the 
debtor members to the creditor members, which must be promptly 
paid to the satisfaction of the latter. If payment is not made be- 
fore four o'clock on the same day the Clearing-house must be no- 
tified immediately, otherwise the other members are free, from re- 
sponsibility on such checks. In case of default the other members 
must make up the deficiency in proportion to the checks they 
have cleared on the defaulting member on that day, and the latter 
is required to return the checks it has received unmutilated, and 
in case it refuses or cancels such checks, the same are treated as 
if returned. 

At Pittsburgh the hour for clearing is nine o'clock A. M., and the 
average time occupied is twelve minutes. The checks to be ex- 
changed are put up in large, unsealed envelopes. The debtor banks 
pay their balances in cash, inclosed in sealed envelopes, between 
io)4 and ii o'clock a.m., and the creditor banks receive them be- 
tween 1 1 and 1 1 y z o'clock a. m., a receipt being given in each case. 
All checks sent to the Clearing-house are marked with the stamp 
of the bank sending them. The manager compiles periodical state- 
ments showing the condition of the associated banks and of the 
banks which clear through them. 

At Providence, where there is no regularly organized Clearing- 
house, nineteen banks clear through the Merchants' National Bank, 
and fifteen through the National Bank of North America. The 
routine, as stated by Mr. John W. Vernon, Cashier of the Mer- 
chants' National Bank, is as follows : Each bank, instead of assort- 
ing the checks and other clearing matter it holds, and depositing 
the packages made up against every other bank, deposits its ex- 
change in bulk with its clearing bank, and the latter assorts the 
checks and notes, making up new packages against each bank. 
When the two clearing banks have finished assorting the checks 
and other items and making up the packages, they exchange with 
each other, settling the balance in New York or Boston funds. 
The time required for assorting and exchanging the checks and 
notes is such that, although the exchange is to be deposited at \o% 
o'clock A. M., the clearing banks are not ready to settle balances 
until about one o'clock. Between one o'clock and three P. M. the 
clearing banks pay the creditor banks, and are paid by the debtor 
banks in cashiers' checks on New York or Boston banks, at the 
option of the payee. The banks clearing through the National 
Bank of North America stamp all the checks deposited by them 
with a circle containing the clearing number of the bank. Each 



CLEARING-HOUSES OUTSIDE OF NEW YORK. 257 

bank clearing through the Merchants' National Bank stamps the 
checks it deposits with a triangle containing its clearing number. 
National bank notes as well as checks are included in the ex- 
changes. 

At Milwaukee the hour for clearing is 10^ o'clock A. M. The 
various stages of the work occupy about an hour. Debtor banks 
pay their balances to the Clearing-house at two o'clock p. m., either 
in lawful money, National bank notes, or such Clearing-house cer- 
tificates as may be agreed on from time to time., At 2% o'clock 
P. M. the creditor banks receive their balances. In case a bank de- 
faults in the payment of its balances the other banks are to make 
up the deficiency on the manager's requisition in proportion to 
their balances against the defaulting member, and until the settle- 
ment is completed the exchange is in trust only, and the vouchers 
remain the property of the members presenting them and are to 
be returned if required. Checks not good are to be returned before 
12% o'clock. to the member sending the same, which is to reim- 
burse the holder by one o'clock. The expenses (about $850) are 
borne by assessment to be fixed by the Clearing-house commit- 
tee, and to be paid quarterly in advance. The members are re- 
quired to keep uniform hours, and are not allowed to receive on 
deposit checks upon any banks or bankers in Milwaukee which are 
not members, unless such banks or bankers clear through some 
member. The banks stamp checks sent to the clearing-house. Any 
member may be subjected to examination, or required to furnish 
security, upon representation that its capital is seriously impaired. 

At Kansas City the hour for clearing is 12.30 o'clock P. M., and the 
manager's certificates are issued in settlement of balances as soon 
as the proof is made. They are, in form, identical with that used 
at St. Louis, except that recourse may be had on the other mem- 
bers up to 2^ instead of 2 p. M. The Constitution is almost word 
for word identical with that of St. Louis, and checks cleared are 
stamped in the same manner. The hours of the members are to 
be uniform, as regulated by unanimous vote. Proper matter for 
clearing, according to the by-laws, consists of checks, drafts, certifi- 
cates of deposit, demand or matured, and any other matter specially 
agreed upon, and any bank clearing paper not proper is subject to 
a fine. The manager makes monthly or quarterly statements, show- 
ing the clearings and balances of each member for the month or 
quarter, the amount of fines imposed upon each member, and the 
causes thereof. Only National and State banks having a capital of 
$50,000 or more are eligible as members. 

The Louisville Clearing-house is modeled mainly after that of 
Cincinnati. Checks only are cleared; balances are settled by mana- 
ger's check, which must be collected on the same day, or the holder 
loses recourse. 



258 PRACTICAL BANKING. 

The Detroit Clearing-house is conducted on principles similar to 
those of the Chicago Association. The clerks, as well as the mana- 
ger, furnish bonds with sufficient sureties. The hour for clearing is 
12.15 o'clock P. m. A fine of one dollar per minute is imposed 
for tardiness, and the clearings are in no case delayed more than 
five minutes by the absence of a member. Fifteen minutes are al- 
lowed for the proof, but the average time occupied is only ten 
minutes. Fines are doubled in thirty minutes, and quadrupled in 
one hour. The debtor members pay their balances to the manager 
between 1 and 1.30 p. m. in coin, legal tenders, National bank notes, 
Clearing-house certificates provided for by the rules of the Associ- 
ation, or New York exchange. At last accounts the practice, since 
the Association was formed, has been to pay balances in New York 
exchange only. At 1.30 p. m. the creditor banks receive their bal- 
ances. The exchange is in trust, and vouchers remain the property 
of the member presenting them until balances are paid, and in 
case of default must be returned to the Clearing-house unmutilated 
by 1.30 p. m. The defaulting bank is also entitled to receive back 
the vouchers it has presented, and the exchanges with it are can- 
celled. If the New York exchange given in settlement of balances 
is dishonored, the deficiency is assessed upon the banks having 
debit balances against the defaulting member in proportion to such 
balances. To provide for expenses the members each pay $50, and 
an equal share to the cost of printing. All beyond this is provided 
by an assessment on the banks in proportion to their exchanges 
sent to the Clearing-house. The paper cleared consists of checks, 
drafts and certified paper. Some of the members affix some distin- 
guishing mark to paper cleared, but this is not required by the 
rules of the Association. 

At Cleveland the clearings are made at one o'clock P. M. Bal- 
ances of more than $ 1,000 are settled by New York exchange. 
When balances are under $1,000, a balance check is given which is 
put through the clearings of the next day. Consequently, no cash, 
is handled in paying balances. Checks cleared are marked with a 
Clearing-house stamp. 

At St. Paul the regulations are modeled after those at Chicago 
and Milwaukee. The clearings are made at 10.30 o'clock, a. m., and 
the average time occupied is seven minutes. Checks only are 
cleared. A clerk of the First National Bank of St Paul, where 
the clearings take place, acts as manager. The "paid" stamp of the 
sending bank is the only distinguishing mark affixed to checks pass- 
ing through the Clearing-house. Balances are payable in coin, Na- 
tional bank notes, legal tenders, and gold or silver certificates. No 
silver dollars are ever offered by mutual understanding. 

At Indianapolis the manager receives at the room of the Asso- 
ciation from members, between 12 o'clock noon and 12^ p. m.„ 



CLEARING-HOUSES OUTSIDE OF NEW YORK. 259 

the checks, drafts and notes to be exchanged, and immediately 
afterwards collects from or pays to each bank at its place of busi- 
ness the balances resulting from such exchange. No member is 
allowed to receive in payment a check on any Indianapolis bank 
not a member, and no paper payable at any bank not a member 
is allowed to pass through the Clearing-house. All checks received 
by members after one o'clock must be certified. All paper cleared 
must bear the endorsement of the sending bank, either in writing 
or by stamp, as an acknowledgment of payment and not as a 
guarantee, except as to the genuineness of other endorsements. The 
maker of a check dishonored for want of funds is discredited, the 
members are all notified, and no uncertified check of such a person 
is allowed to pass through the Clearing-house until his credit is 
restored by vote of the Association. All notes and acceptances 
must be certified before passing through the Clearing-house. The 
manager takes up the checks delivered to and by any defaulting 
member, and returns them. Expenses, except as provided for by 
fines, are paid by the banks in proportion to their capital and de- 
posits. The manager is to be a notary and has the privilege of 
protesting such paper as the members have for protest, his fees 
being his only compensation. 

At Hartford the business of clearing is done by the members in 
turn, each for one month at a time, some officer of the clearing 
bank being manager. The hour for clearing is 10 o'clock and 5 
minutes, and the time occupied averages fifteen minutes. The debtor 
banks pay their balances to the Clearing-house at or before 11)4, 
A. M., in checks on New York, except balances of less than $ 100, 
which may be paid in currency. The creditor banks receive their 
balances at 12 M. The matter cleared includes notes, drafts and 
checks, also bank notes of the members to a very limited extent. 
All paper cleared must bear the written or stamped endorsement 
of the bank sending it. In case of default the other banks make 
up the deficiency as at New York and Boston. All checks not 
good must be returned to the sending bank by 12 o'clock noon. 

At Minneapolis the clearings occur at eleven o'clock a. m. The 
constitution is not printed, but the routine appears to be in general 
similar to that at New York. 

At New Haven, as at Hartford, the banks take turns, each bank 
acting as the Clearing-house for three months. The exchanges are. 
made at 9.15 a. m., and include checks, acceptances, notes certified 
the day before, and in fact everything in the form of an order on 
any member. Balances are to be paid by noon in drafts on New 
York. 

At Memphis the exchanges occur at nine o'clock a. m., and the- 
time consumed by the manager in the adjustment of balances is 
about thirty minutes. In settlement of balances the manager draws 



260 PRACTICAL BANKING. * 

his check on the debtor in favor of the creditor members in the 
following form : 







Memphis Clearing-house, 












Memphis, 


Tenn 

.BANK. 




1884. 


Pay to G. 


in 


settlement 


of balances 


this morning 


Sh 


thousand 


five hundred 


and 


fifty T % 


dollars. 








$6,55o T 2 oV 












.Adjuster. 



Instead of writing the name of the payee in full, the initial letter 
or letters simply are used. The amount of checks brought by each 
bank is entered on a credit slip, and the amount taken away on a 
debit slip. This latter also contains additional rulings to show the 
balance due to or from the bank, and against the initials of. each 
bank is written the' amount of checks drawn upon it or in its favor 
to settle this balance. Balances must be settled in current funds. 
Checks only are cleared, and they are delivered in sealed envelopes 
designated on the outside as follows . 



Memphis Clearing-house, 
July 1, 1884. 
U. $ 10,000 from Commerce. 



That is Union and Planters' Bank % 10,000, from the Bank of 
Commerce. 

At Peoria the clearings are made at 11.30 o'clock A. M., and 
occupy about half an hour. The clearing matter consists of checks. 
Members are to report upon balances resulting from the exchanges 
before one o'clock, after which hour the balance becomes the debt 
of the bank. Balances must be paid by the debtor banks at the 
counters of the creditor banks before three o'clock, in currency, 
unless arrangements have been made before that hour for payment 
in exchange on other points. Checks not good must be returned 
before 1.30 p. m. 

At Portland the six National banks, without being formally or- 
ganized as a Clearing-house, settle daily at ten o'clock a. m. The 
time occupied is about fifteen minutes. Portland checks only are 
included in the clearing. Balances are paid in legal-tender notes, 
or checks on Boston or New York. 

The Worcester and Lowell Clearing-houses are organized on the 
same plan. Each bank belonging to the Association is required to 
make a deposit fixed by vote of the Association with the Clearing- 
house Committee as its proportion of a clearing fund. This fund 
is deposited with one of the banks selected as the clearing bank, 



CLEARING-HOUSES OUTSIDE OF NEW YORK. 261 

free of interest, as a compensation for services and expenses. The 
clearing bank is changed each year at Lowell. The cashier of the 
clearing bank is, ex officio, the manager of the Clearing-house. No 
bank is allowed to make the clearings of a bank that is not a 
member. At Worcester the hour for making the exchanges is 12 
o'clock noon, and the time occupied is about fifteen minutes. At 
Lowell the hour of clearing is eleven o'clock, and the time occu- 
pied is from seven to ten minutes. The clearing matter of both 
consists of checks, drafts and notes. At Worcester paper cleared 
is marked as follows : " Pay only through Worcester Clearing-house 

to " At Lowell no distinguishing mark is affixed. At the 

latter balances are paid by drafts on New York or Boston ; at 
Worcester by checks on Boston. 

At Springfield the exchanges occur at eleven o'clock at the 
Chicopee National Bank, and occupy about twenty minutes. One 
clerk for each bank performs the duties of messenger and settling 
clerk. All kinds of paper are cleared, each item being stamped 
with the stamp of the sending bank. Balances of less than % 200 
are paid in currency ; if more than that by New York or Boston 
drafts. 

At Columbus, Ohio, the representatives of the banks clear at the 
Board of Trade Rooms in City Hall at two o'clock p. m. The ex- 
changes occupy ten minutes, the adjustments twenty. Clearing 
matter consists of checks to which no distinguishing mark is affixed. 
Balances are paid by manager's checks on the debtor banks. 

At Norfolk the banks select one of their number to be the Clear- 
ing-bank for one year, and the cashier of that bank is ex officio 
manager of the Clearing-house. The hour for making the exchanges 
is eleven o'clock precisely. At 12^ o'clock the debtor banks pay 
their balances at the Clearing-house in currency, and the creditor 
banks receive their balances at one o'clock. Checks not good must 
be returned by 12 m. to the bank sending them, and must be 
satisfied by 2.30 p. m. All checks presented in payment of notes 
and drafts (except when presented by the runner) must be certi- 
fied by the bank on which they are drawn. Although the rules 
require the payment of balances in currency they are, as a matter 
of accommodation between the banks when exchange is plentiful, 
often paid by checks on New York, Philadelphia, or Baltimore. 

At Syracuse the exchanges take place at 10.20 A. M., and occupy 
five minutes, the paper cleared being checks, certified notes and ac- 
cepted drafts. No distinguishing mark is affixed to paper cleared. 
Balances are paid as convenient within two hours following the 
clearing in drafts on New York. 

Notwithstanding the space given to the foregoing particulars in 
relation to the various Clearing-houses in the United States, many 
matters of interest have been necessarily omitted, while others of 



262 PRACTICAL BANKING. 

importance, familiar to those connected with Clearing-house busi- 
ness, may have been overlooked. In the collection of such a va- 
riety of data from so many different sources, errors, both of omis- 
sion and commission, are liable to occur. Enough has, however, 
been brought together to furnish material for suggestive compari- 
sons as to the methods in use at the various Clearing-houses. 
When all the Clearing-houses, however unimportant their operations 
may seem, shall preserve full and accurate records of their busi- 
ness in its various details, such comparisons will shed increased 
light upon the movements of our internal commerce, and, still bet- 
ter, repay careful study. 



FOREIGN CLEARING-HOUSES. 263 



CHAPTER XII. 
FOREIGN CLEARING-HOUSES. 

Of foreign Clearing-houses, by far the most important is that of 
London, embracing twenty-seven banks, including the Bank of Eng- 
land, which only became a member about twenty years ago, and 
clears only on one side, that is, its charges on other banks. These, 
being obliged as members of the Clearing-house to keep an ac- 
count with the Bank of England, pay in their charges against it 
to the credit of their account. A considerable number of London 
banks in high credit have so far been refused the privilege of mem- 
bership in the Clearing-house. Indeed so exclusive was it formerly 
that until 1854 the joint-stock banks were refused admission. The 
West End and Scotch banks and others not yet admitted, clear 
through members. 

The number of daily clearings at London is three, as follows : ' 
Ordinary Days. 

"Morning clearing to open at 10.30. Drafts, &c, to be received 
not later than 11. Morning clearing must be closed by 12. 

"Country clearing to open at 12. Drafts, including returns, to 
be received not later than 12.30. Country clearing must be closed 
by 2.15. 

" Afternoon clearing to open at 2.30. Drafts, &c, to be received 
not later than 4. Returns to be received not later than 5, except- 
ing on settling days, when the last delivery shall be at 4.15, and 
returns at 5.15." 

Fourths of the Month. 

" Morning clearing to open at 9. Drafts, &c, to be received not 
later than 10. Morning clearing must be closed by 12." 

Country clearing takes place as on ordinary days, and afternoon 
clearing as on settling days, except when the fourth of the month 
occurs on Saturday, in which case the hours are as on ordinary 
days. 

Saturdays (not being Fourths'). 

"Morning clearing to open at 9, Drafts, &c, to be received not 
later than 10. Morning clearing must be closed by 11. 

"Country clearing to open at II. Drafts, including returns to be 
received not later than 11.30. Country clearing must be closed by 1.15. 



264 PRACTICAL BANKING. 

"Afternoon clearing to open at 1.30. Drafts, &c, to be received 
not later than 3. Returns to be received not later than 4." 

In explanation of certain terms used at the London Clearing- 
house it may be stated that an "article" is a bill, "or check or 
dividend warrant, or banker's payment slip, or memorandum for 
country notes, or indeed any article that is paid into the clearing 
for settlement there." 

"A 'charge' is a batch of articles {i.e., bills, checks, bankers' pay- 
ments, &c.) sent into the Clearing-house by one banker to be 
charged by him against another. 

" ' Returns ' are any articles which may be returned into the Clear- 
ing-house unpaid, from want of funds, irregularity of endorsement, 
no advice, or from any other cause." 

The officer having charge of the clearing is called an inspector, 
and not a manager, as in this country. The London Clearing-house 
has two inspectors. Instead of blanks, such as are used at Ameri- 
can Clearing-houses, books are used. The checks and bills to be 
presented by any one clearing banker upon any other are entered 
at home in the " Out-clearing book." There is also the " In-clearing 
book," in which are entered the amounts of the checks received in 
the exchange; the Out returns, the In returns, the Clearing Bal- 
ance Book, the Clearing Difference Book, &c. 

The London Clearing-house is a plain oblong room with rows of 
desks in compartments round three sides and down the middle. 
A small office for the two inspectors stands at one end. Each 
bank sends as many clerks to the house as may be requisite for 
the rapid completion of the work, some of the banks having as 
many as six clerks. The mode of conducting the business, as de- 
scribed in the last edition of Gilbart o?i Banking, is substantially 
as follows : 

The matter cleared at the morning clearing consists, as a rule, 
of bills and marked checks. These bills are bills which have 
been discounted by the bank or held for collection on account 
of customers. During the afternoon of the day before they fall 
due, they are passed from the bill department into the clearing de- 
partment, so as to let the clearing clerks get an early start next 
morning. On the morning of the day on which they mature, the 
clearing clerks sort them into various packages, one for each of the 
other twenty-five ( or if the Bank of England twenty-six ) clearing 
banks. Thus those which fall due at the London and Westminster 
Bank are sorted into one parcel, and the same in other cases. The 
amounts only are then entered in the spaces left under the respec- 
tive headings of the other banks in the Morning Bill Book. The 
clearing clerks then sum up the entries in this book, and check 
the aggregate of the various totals with the sum supplied to 
them on a memorandum by the bill department of the bank. 



FOREIGN CLEARING-HOUSES. 265 

If right, their clearing work is checked so far, and they then 
transfer the various totals into the Out-clearing Book. Having done 
this they next proceed to deal with the " marked checks." These are 
checks which have been paid in by customers on the afternoon of 
the day before, too late for the day's clearing. Every afternoon 
each bank sends these checks out to the other banks upon which 
they are drawn to be marked for payment. This marking consists 
of the initials of one of the cashiers put upon the checks as an 
acknowledgment that they are all right and will be duly paid in 
the clearing next morning. The banks send out these checks to 
be marked chiefly for the convenience of their customers, but 
partly for their own protection in case a cashier might pay against 
an uncleared check which might afterwards prove to be bad. If a 
banker chose not to send out such checks for marking, no ques- 
tion could be raised by his customer as to want of due presentation, 
because it is distinctly stated on the pay-in slips with which each 
customer is supplied, or the customer is acquainted in some other 
form, that checks not paid in by half- past three may not be cleared 
the same day. These marked checks are sent to the Clearing-house 
the first thing in the morning along with the bills, and the two to- 
gether form what is termed the " first charge." Some of the banks 
try, and some manage, to get the remittances received in their 
morning letters into their first charge ; but as the morning clearing 
closes for delivery at eleven o'clock, none but those bankers who 
begin business very early can put through so large an amount of 
work with any degree of satisfaction in time for the morning 
clearing. 

Although the afternoon town clearing nominally begins at 2.30 
P. M., and closes for delivery at 4 P. m., the Clearing-house clock 
is always kept five minutes behind Greenwich time, so that the 
representatives of the various banks have always five minutes grace 
allowed them. 

To the afternoon clearing, which is the heaviest in the day, the 
banks, as a rule, send in some six or seven " charges." But, in 
exceptional times, for instance, during the progress of dividend 
payments, or when, from any cause, business is particularly brisk, 
many more charges are sent in. But in ordinary times about half- 
a-dozen is the usual number. At the opening of the afternoon 
clearing the first charge delivered is usually composed of remit- 
tances received in the morning letters. Then about three o'clock 
the second charge is sent in, and is composed of the checks and 
other vouchers received over the counter during the morning by 
the cashiers for the credit of customers. Then, about every twenty 
minutes or so, from three o'clock till four, charges of the same 
description are sent in. At two or three minutes past four (by the 
bank clock; a final charge, consisting of a few articles of large 



26.6 . PRACTICAL BANKING. 

amount, or articles which, for some reason, the banker may be par- 
ticularly anxious to clear, may be sent in. There is thus a clerk 
running between each bank and the Clearing-house frpm time to 
time, delivering the charges he has upon the other banks. 

The first charge sent to the Clearing-house during the day is 
marked on the back of the last check thereof, with the total amount 
which in our Clearing-houses is entered on the exchange slip attached 
to the checks. 

Country notes are not exchanged at the Clearing-house, but are 
taken round to the bankers who are agents for the country bankers, 
and exchanged for tickets, which are passed through the afternoon 
clearing. 

As the clerks reach the Clearing-house with their successive 
charges they distribute their packages around the room to the 
desks of the clerks representing the several paying banks. These 
clerks, corresponding to our settling clerks, immediately begin to 
enter these charges in the In-clearing Books, in columns bearing at 
the head the name of the presenting bank. As soon as this is 
done the vouchers are immediately sent away to the bank at which 
they are payable, where they are critically examined and, if correct, 
posted in the ledgers. In case there is cause for refusing payment, 
either for want of funds, irregular endorsement, or irregularity of 
any kind, they are sent back to the clearing and returned to the 
delivering banker with a distinct answer marked upon each check 
of the cause of the return. These returns must be sent back to 
the Clearing-house not later than 5 P. M. on ordinary days, and not 
later than 5.15 in any event, and are entered again as a reverse 
claim by the bank dishonoring them on the bank presenting them. 
The clearing clerks do not wait for the returns before they begin 
the balancing for the day. The moment the Clearing-house clock 
strikes four (five minutes past by Greenwich time) they begin the 
process of balancing, leaving the returns, if any, to be entered af- 
terwards. Notwithstanding the vast daily transactions of the Lon- 
don Clearing-house, the aptitude of the clerks for their particular 
work renders errors of infrequent occurrence. The system of mark- 
ing the first and largest charge on the back facilitates the balanc- 
ing by the opportunity it gives to each clerk of checking the major 
part of his work early in the day. 

The In-clearing Book of each clerk ought to agree, of course, 
with the portions relating to him of the Out-clearing Books of the 
other clerks. The Out-clearing Book, it will be remembered, is writ- 
ten up inside the bank, and carried to the Clearing-house at four 
o'clock for the purpose of checking. Each clerk compares his 
work with that of the other clerks, one by one. If he is right 
with all he then balances, and there is no further trouble; but if he 
is wrong with any, to any large amount, he is bound to discover 



FOREIGN CLEARING-HOUSES. 267 

his error before leaving the house. The total amount of the morn- 
ing and country delivery must be agreed by each before leaving 
the Clearing-house. As to the other clearing, a difference of ^1,500 
over (the in-clearing clerk being always supposed right), or of less 
than ^1,000 short, is allowed to stand over until the following day 
if it cannot be readily discovered. Considerable confusion some- 
times arises from shouting corrections across the room from one 
clerk to another. 

The country clearing was introduced by Sir John Lubbock in 
1858. Every bank in London receives during the day a large num- 
ber of checks upon country bankers. Upon these checks the name 
of the London agent is printed. Every clearing banker in London is 
the agent for one or more country banks. Thus the London and 
Westminster Bank is the London agent for the North and South 
Wales Bank, the Nottingham and Notts Bank, and Hall, Lloyd & Co. 
On the checks drawn on these country banks the name of the Lon- 
don & Westminster Bank is printed as their respective agents. So 
when the clearing clerks of each bank get such checks from the 
cashiers, correspondence department, and other sources, they pro- 
ceed to arrange them for clearing as they do town checks, sorting 
them and putting them up in packages according to the London 
agents at which they are payable. No credit is given in the clear- 
ing for these country checks on the day on which they are delivered. 
The amounts are simply settled by the delivering clerks and the 
receiving clerks, and then the articles are taken to the respective 
banks, whence they are sent by post the same evening to the 
country bankers by whom they are payable. If these checks, on 
reaching their destination, are found to be in order, they are cred- 
ited in account with the London agent, and advised ; but if any 
of them are not in order, either from insufficient funds or irregular 
endorsement, or any other cause, euch irregular checks are returned 
direct to the banker whose crossing they bear. All country checks 
not returned or advised by the morning of the third day are assumed 
to be paid, and credit is accordingly given for them in the clear- 
ing of that day and the amount is settled for, along with those 
advised paid, in the final balance. All country checks held by Lon- 
don bankers, returned unpaid, must be returned into the hands of 
the clerk representing the delivering bank by half-past twelve on 
the third day, and they are simply deducted from the total of the 
country checks on the day of settlement. The balance only of the 
country clearing is brought into the final settlement on each bank's 
town clearing balance sheet, as will be seen by reference to the 
form given below. "C. H." on the same form means Clearing- 
house, and is meant for the adjustment of differences, and " Bank " 
means Bank of England. 



>68 



PRACTICAL BANKING. 



Specimen Form of a London Bankers' Clearing Balance Sheet. 
The National Provincial Bank of England. 

Debtors. Creditors. 



d. 



Alliance 

Barclay 

Barnett 

Bosanquet 

Brown 

Central 

City 

Consolidated 

County 

Dimsdale 

Fuller 

Glyn 

Imperial 

Joint 

Bank 

London & Southwestern 
London & Westminster.. 

Martin 

Metropolitan 

National 

Prescott 

Robarts 

Southwark * 

Smith 

Union 

Williams 

Country Clearing 

C.H 



This sheet when filled up shows the account of the National 
Provincial Bank of England with all the other clearing banks, their 
names being abridged to save space. It nearly corresponds with 
the settling clerk's statement in the New York Clearing-house, the 
name of the bank whose accounts it represents being given at the 
head and omitted in the body of the statement. 

Balances are settled at the close of each day by transfers on 
the books of the Bank of England, at which a special account is 
kept, called the " Clearing Bankers' Account," in addition to the 
separate account of each bank. When the result of the day's 
clearing is a balance against one of the banks, Barclay & Co., for 
example, the transfer is made in the following form : 

Settlement at the Clearing-house. 

London, July i, 1884. 
To the Cashiers of the Bank of England : 

Be pleased to transfer from our account the sum of Fifty-one thousand two 
hundred and one pounds 4s. 2d., and place it to the credit of the account of the 
Clearing Bankers, and allow it to be drawn for by any of them (with the knowl- 
edge of either of the Inspectors, signified by his countersigning the drafts). 
;£ 51,201 4s. 2d. Barclay & Co. 



* This is the Southwark branch of the London & Westminster Bank which clears sep- 
arately. 



FOREIGN CLEARING-HOUSES. 269 

For which the Bank signs the following certificate: 

Settlement at the Clearing-house. 
Bank of England : July 1, 1884. 

A transfer for the sum of Fifty-one thousand two hundred and one pounds 48. 
2d., has this evening been made at the Bank from the account of Messrs. Barclay 
& Co. to fhe account of the Clearing Bankers. 

;£ 51,201 4s. 2d. For the Bank of England. 

This certificate has been seen by me, 

Inspect oi- . 

On the other hand, when the balance is in favor of the bank, 
the National Provincial, for instance, the following forms are 
used : 

Settlement at the Clearing-house. 

London, July 1, 1884. 
To the Cashiers of the Bank of England : 

Be pleased to credit our account the sum of Two hundred and thirty-six thousand 
and forty-four pounds 2s. 2d. out of the money at the credit of the account of the 
Clearing Bankers. For the National Provincial Bank of England. 

.£236,044 2s. 2d. A. B. 

Seen by me, 

Inspector at the Clearing-house. 

For which the bank gives the following certificate : 

Settlement at the Clearing-house. 

Bank of England: London, July 1, 1SS4. 

The account of the National Provincial Bank of England has this evening been 
credited with the sum of Two hundred and thirty-six thousand and forty-four 
pounds 2s. 2d. out of the money at the credit of the account of the Clearing 
Bankers. For the Bank of England. 

;£ 236,044 2S. 2d. 

As the balances paid and the balances received are the same 
(errors excepted), so the amount credited to the clearing bankers' 
account each da}' must be the same as the amount debited. It 
is only a means by which the debtor banks pay the creditor 
banks on each day by a simple transfer, without handling any 
cash. Previous to 1854 balances were paid in cash. The per 
cent, of balances to clearings is considerably greater at London 
than at New York, and has shown a marked increase. In 1810 
the balances were 4.68 per cent, of the clearings ; in 1839, 6.94 
per cent., and in 1879-80, 12.16 per cent., as compared with 4.96 
per cent, at New York in 1879. The balances are probably greater 
on account of the country clearings. 

By having three clearings instead of one, and allowing banks to 
bring so many successive charges at intervals to each clearing, instead 
of one charge delivered precisely at a given hour, the Clearing-house 
work occupies very much more time than at New York, where the 
transactions are considerably larger. In fact, substantially, the whole 
day is spent by the clearing clerks at the Clearing-house, or l?l going 



270 PRACTICAL BANKING. 

to and from it, whereas at New York an hour, or less, for each 
clerk and messenger suffices for the whole work. On the other 
hand, by having so many clearings, and the heaviest at the close 
of the day, mercantile paper sent through the clearing is more 
promptly presented. 

The Manchester Clearing-house was established in 1872, and has, 
since that date, been under charge of Mr. D. T. Brewer, as inspector. 
The work there is performed on loose forms, and not in account 
books, as at London. The work is done more nearly on the plan 
prevailing at New York, which is, in several respects, an improve- 
ment on that prevailing at London. There are two clearings daily 
at the Branch of the Bank of England, the first at 11.15 A - M - 
(a preliminary one), and the second at 2.15 p. m. The clearing 
is quickly accomplished, and "goes on with noiseless ease, strongly 
contrasting with the turmoil of the London house." This is, 
of course, owing in part to the immensely larger transactions 
effected at the latter. At Manchester each of the twelve clearing 
bankers is represented by a single clerk, who delivers and receives 
the vouchers and adjusts the accounts. The balances for the day 
are settled after the close of the second clearing by transfers on 
the books of the Bank of England, the forms being very similar 
to those used at London. The Clearing-house at Newcastle-on- 
Tyne was established January 2, 1872, and embraces seven members. 
On ordinary days there are three clearings daily, usually at 11.15 
A. M., 2.15 and 3.15 P. m. On January 1st there is one at 10.30 A. M. 
On Saturdays and holidays there are two clearings, usually at 11.15 
A. M. and 1.1 5 P. m. Articles dishonored are returned through the 
Clearing-house on the same day, not later than forty-five minutes 
after the commencement of the last clearing. The methods of do- 
ing the business and paying balances are similar to those in use at 
Manchester. The total of its transactions in twelve years has been 
^332,470,125, as compared with ^1,043,360,000 at Manchester. The 
operations of the Newcastle Clearing-house are conducted at the 
Branch of the Bank of England, . under charge of a committee, of 
which the agent of the bank — at present Mr. J. B. Fairley — is chair- 
man. 

There are also Clearing-houses at Liverpool, Edinburgh and Dub- 
lin. At Edinburgh there is one general clearing daily, opened at 
one and closed for delivery at fifteen minutes past one P. M., except 
on Saturday, when it opens at eleven and closes at fifteen minutes 
past. The Bank of Scotland and the Royal Bank of Scotland un- 
dertake the settlement each alternate month. There is also a note 
exchange daily at 10 a. m., except on Monday, and a second ex- 
change at 1.30 P. M. on Saturday for large notes only. On Monday 
and Thursday the balances are included in the general settlement 
of the exchange and clearing. On other days the settling bank re- 



FOREIGN CLEARING-HOUSES. 271 

ceives from the debtors and ■ gives to the creditors exchange 
vouchers for the respective balances within one hour after the 
closing of the Clearing-house, and these vouchers are brought into 
the next clearing, and bear interest, included in them, at two per 
cent, until that clearing. Each document cleared, except notes, is 
to bear a Clearing-house stamp, containing the name of the clear- 
ing bank and the date, also the stamp of any district branch at 
which it may have been cashed. Documents dishonored are settled 
between the banks, unless drawn on a branch, in which case they 
may be sent through the clearing the next day. These banks use 
clearing books having every alternate sheet perforated down the in- 
side margin. The charges against the other banks are written up in 
pencil on the unperforated sheets, and by the aid of a sheet of 
carbonized paper placed underneath., an impression of the items is 
taken on the perforated sheets. These duplicates are then torn 
out and handed over with the corresponding articles to the clerks 
of the other banks, who simply compare the one with the other, 
so as to save the time and trouble of taking down afresh in their 
own books the amounts of the various articles. When the clerks 
return to their respective banks, these duplicates are gummed upon 
the margins from which their own delivering sheets had been de- 
tached, preserving a convenient record of the articles delivered to, 
and the articles received from, each bank following each other. All 
abstracts of totals, balances and the like, are kept in a permanent 
form, written in ink. The paid-up capital of the Edinburgh clear- 
ing banks is ;£ 8,250,000. 

The Dublin Clearing-house comprises four banks — all the banks 
of issue in Ireland — and was established in 1845. The capital of 
the four banks is ^5,040,000. There are two clearings — in the fore- 
noon, for notes and checks at 10 o'clock ; afternoon, final clearing 
for checks at two o'clock. On Saturdays the hours are 9.30 a. m. 
and 12 m. Banks are admitted to the exchange for fifteen minutes 
after these hours. Balances are paid in Exchequer bonds, except 
for fractional parts of £ 500, which may be paid in notes of the 
debtor bank, the Exchequer bonds to be used for no other pur- 
pose, and to be stamped "Dublin Exchanges." Each bank is re- 
quired to maintain its quota of a total of ,£400,000 of these bonds. 
The exchanges are made at the Bank of Ireland. All orders payable 
on demand, whether in Dublin or in country towns, are to be 
passed through the Clearing-house. Documents returned dishon- 
ored are not allowed to pass through the Clearing-house. Those 
banks in Dublin which are not banks of issue are not members of 
the Association, but deposit the checks they hold on other banks 
with the Bank of Ireland, with which they keep an account. 

In preparing the foregoing account of British Clearing-houses free 
use has been made of Gilbart on Banking and Jevons' Money and 



272 PRACTICAL BANKING. 

the Mechanism of Exchange, and of a series of articles recently 
published in the London Banker's Magazine on the Clearing-house 
system. 

The Liverpool Clearing Association was formed, according to 
United States Consul S. B. Packard, about 1878, and embraced, in 
1882, ten of the Liverpool banks, leaving six establishments, mostly 
private banks, outside. These banks keep clearing accounts with 
each other of all checks drawn on any of their number. Each 
bank every evening makes up in its own books the accounts with 
each of the other clearing banks, and settles the balances due from 
or to it by means of transfers through the Bank of England's 
Liverpool branch, with which all the clearing banks keep an account. 
The capital of the Liverpool clearing banks, exclusive of two private 
banks, was, in 1882, ^3,815,110. 

Clearing-houses were established at Paris and Vienna in 1872. At 
the latter, in fact, there are two Clearing-houses, the Bankers' 
Clearing-house, and the Arrangement Bureau, or Stock Exchange 
Clearing-house. The latter alone has transactions of any great mag- 
nitude. The volume of the check exchange is small, as most of 
the public find bank notes cheaper and more convenient than 
checks, which are subject to a tax of two kreutzers (about 1 cent) 
each, regardless of size. The Paris Clearing-house has been al- 
ready noticed. In 1876 a system of check exchange was started 
in Berlin, and developed to such proportions that in 1883 Clearing- 
houses were established in Berlin (April 2d), Frankfort-on-the- 
Main (April 2$), and Cologne, Stuttgart, Leipsic, Dresden, and lastly 
Hamburg, in the course of the summer. The President of the 
Imperial Bank Directorium states that these institutions are not 
widely different from the Clearing-houses of London and New York. 
The most important of the German Clearing-houses are those of 
Berlin, Hamburg, and Frankfort-on-the-Main, the others falling far 
behind these. Previous to last December the volume of transac- 
tions at these Clearing-houses was not published. For December 
the aggregate for all was 887,546,700 marks, and in January, 1884, 
930,707,700 marks, or at the rate of 11,168,492,400 marks — or about 
$2,680,000,000 — for the year. This is a little more than Chicago, 
and a little less than Philadelphia. There are fourteen Clearing- 
houses in Italy, located at Milan, Leghorn, Genoa, Catania, Rome, 
Bologna, and other places. The transactions of these six Clearing- 
houses amounted, in 1884, to 1,685,345,781 f., or about $325,000,000, 
those of Milan and Leghorn being the only ones of importance. 

The Banks' Clearing-house of Melbourne, Australia, is analogous to 
the other British Clearing-houses. On ordinary days there are six 
clearings ; on Saturdays four ; on Mondays eight ; on Tuesdays 
five. An exchange slip accompanies each charge delivered at the 
Clearing-house. There is a special clearing for checks returned dis- 



FOREIGN CLEARING-HOUSES. 273 

honored for any cause. Balances are paid every Tuesday, all even 
sums of ^500 and upwards in sovereigns or parchment vouchers. 
These vouchers are issued against a deposit of sovereigns at one 
of the banks under the care of trustees, and are of denominations 
of ^500 and ;£ 1,000. The total issue is ;£ 500,000. All sums under 
^500 are settled by checks, which are paid into a Clearing-house 
account kept at one of the banks. Bank notes have been included 
in the clearing since 1876. 



274 PRACTICAL BANKING. 



CHAPTER XIII. 

COUNTRY CLEARINGS. 

At London, as already stated, the country Clearing-house has been 
in operation since 1858. But in this country clearing methods have 
hitherto been applied only to transactions among banks situated in 
the same place or its immediate vicinity, though susceptible of ex- 
tension to transactions between different monetary centers and 
possibly even to international settlements. The establishment of 
some system for the more speedy and economical collection of 
country checks is a matter of growing importance owing to changes 
in the methods of doing business. Mr. C. B. Patten, Cashier of the 
State National Bank of Boston, furnishes some interesting facts in 
this connection in reference to New England, which doubtless hold 
good elsewhere. Formerly under the State bank system it was the 
almost universal custom for merchants in the interior to pay their 
bills in Boston by sending the money or a check on a Boston 
bank which they obtained from their nearest country bank, paying 
for the same the usual charge for exchange. But in later years a 
different practice has been growing up. The country trader now 
sends his Boston creditor a check upon the country bank where 
he keeps his account. The country banks, of course, expect to pay 
these at par at their own counters, but they will not as a rule pro- 
vide funds to meet them in Boston without a charge for exchange, 
varying from one-tenth of one per cent, on the larger checks to 
one-quarter or even one-half of one per cent, on the smaller ones. 
So keen is the competition among traders, however, that these 
checks are taken by them at par, and the banks driven also by com- 
petition usually do likewise. To avoid the charges made by the 
country banks, checks are frequently sent home by the most cir- 
cuitous routes, travelling about from city to city and from bank to 
bank for several days. An instance is given where a check for $48 
on a bank in Mt. Gilead, Ohio, deposited at Columbus, was sent 
successively to Cincinnati, Cleveland, Urichsville, Coshocton, New- 
ark, back to Columbus, and then to Cardington, before reaching 
its destination, being out eight days and traveling 650 miles when 
sixty miles would have sufficed. As the check was not paid it had 
to be sent back through the same channels. Another case has been 



COUNTRY CLEARINGS. 275 

given of an item returned protested nineteen days after it started 
for presentation toward a paying bank twenty hours distant. It is 
easy to see how by these delays endorsers may be discharged to the 
serious loss of some holder of the check, not to mention other con- 
tingencies. It would be difficult to show that due diligence was 
used in presenting a check by such a circuitous route. It is said, 
too, that these cases are by no means unusual. 

The growing importance of the subject led to the consideration 
of the remedies to be adopted at the annual meeting of the Boston 
Clearing-house Association, April 9, 1877. A committee was ap- 
pointed consisting of Messrs. George Ripley, John Cummings, Ed- 
ward Sands, Edward L. Tead and Geo. R. Chapman, representing 
respectively the Hide and Leather, Shawm ut, Traders', Exchange 
and Merchants' National banks. This committee in August made 
a majority report signed by Messrs. Riple}r, Cummings, Sands and 
Chapman, and minority report signed by Mr. Tead. From the ma- 
jority report it appears that the daily outstanding balances due to 
fifty of the fifty-one associated banks on account of New England 
country collections then amounted to $2,187,329. This had increased 
in November, 1883, to $4,300,000. The number of checks daily sent 
out in 1877 was 4,080, probably increased in like proportion, and 
the number of letters sent daily was 1,670, although there were 
only 272 towns in New England which had National banks. The 
amount paid yearly for exchange and expenses was computed to 
be $119,647, and interest on the outstanding balances at five per 
cent, reached $109,366, making a total annual cost of $229,013, in- 
creased to $398,000 in 1883. The cost of collecting each check 
was found by the committee to be, for exchange, .045 of a dollar; 
other expenses, .048; interest, .085, giving a total of .178 of a dollar, 
or about nine times the United States stamp tax on a check, which 
was justly complained of by business men and banks alike. The 
cost for each letter was forty-four cents — eleven cents for exchange, 
twelve for expenses, and twenty-one for interest. Under the ar- 
rangements then and still existing, remittances from country banks 
vary in frequency from once a week to once a month, in exceptional 
cases perhaps oftener. It was believed that by a consolidation of 
the business the amount of the outstanding balances might be re- 
duced one-half by more frequent remittances; that the item of 
exchange largely made up of charges upon small checks of less 
than $200 could be very much reduced by having the remittances 
made in larger sums ; and that the sending of 272 letters daily, 
one for each town having a National bank, would suffice, thereby 
saving 1,400 of the 1,670 letters daily sent out, and largely reduc- 
ing the clerical expenses. The danger of loss resulting from delay 
in presenting checks would also be reduced to a minimum by 
the introduction of a better system. The majority of the commit- 
tee reached the following conclusions : 



276 PRACTICAL BANKING. 

" ist. That the business of making collections throughout New- 
England, as now conducted, is attended with great unnecessary labor, 
risk and expense. 

"2d. That its extent, though now large, will inevitably increase 
with the growth of our city. 

" 3d. That the only way materially to reduce the labor, risk and 
expense connected with it is to consolidate the business." 

To this -end they recommended the establishment of a National 
bank to be used as an agency in making such collections, the stock 
of the bank to be subscribed by members of the Clearing-house 
Association. 

The minority report combats the proposed plan as exposing too 
much the business of each bank, and as not reducing the expenses 
as much as the majority anticipated. It was shown that ten banks 
having the largest foreign bank accounts, made more than one half 
of all the New England collections at an expense of 5^ cents 
each, exclusive of interest, and that the superior facilities acquired 
by these banks after years of experience, could not be transferred 
to the proposed collection bank, but would be irretrievably lost to 
themselves by the proposed change. The indirect advantages de- 
rived by the banks from their collection business, in enlarged ac- 
quaintance and the maintenance of a more lively interest between 
the Boston banks and those of the country, were deemed a full 
equivalent for the necessary labor and expense involved. 

It was found, on inquiry, that as a National bank cannot sub- 
scribe to the stock of another National bank, the proposed plan 
was not feasible. The steady increase of the business, however, 
again forced the matter upon the attention of the Association. 
Another committee was chosen, consisting of Messrs. George Ripley, 
John Cummings, Charles A. Vialle, A. L. Newman, and Walter S. 
Blanchard, representing, respectively, the Hide & Leather, Shawmut, 
Republic, Commonwealth, and Metropolitan National banks. This 
committee, in November, 1883, reported unanimously in favor of 
establishing an agency similar to the Clearing-house, which should 
have no capital and make no charge for its services, but whose ex- 
penses should be borne by the banks in proportion to the business 
done. On account of the expense attending such an organization 
this plan was defeated. The whole matter remains, therefore, in 
its previously unsettled condition. Mr. C. B. Patten, Cashier of the 
State National Bank, has suggested that the banks contract with 
one of their number to undertake this business for all, as more 
economical than the proposed Clearing-house for country checks, 
since an established bank " is already in possession of the ' plant ' 
necessary for the transaction of such business, and could make 
money out of it, with a charge for exchange which would not sup- 
port an independent Clearing-house." The unwillingness of the 



COUNTRY CLEARINGS. 277 

banks to expose their business to one of their number, or to give 
the collecting bank the advantage it would thus enjoy for obtaining 
country deposits, is likely to interpose a serious obstacle to the 
adoption of this plan. 

The matter of country collections has also been discussed by the 
bankers of Pittsburgh and vicinity, Vv r here Mr. E. B. Isett, President 
of the Altoona Bank, submitted a plan for the formation of a Clear- 
ing-house among the country banks themselves, at some central 
point, by which the daily settlements could, it is claimed, be ef- 
fected with nearly as much celerity for* a district reached by one 
day's mail as in the Clearing-house of a city. Such an institution 
could but be a source of union and strength to the- banks them- 
selves, as well as a great convenience to the business community. 
It would enable the banks to exert a coercive power over those that 
refused to take part in the movement by rejecting their checks. 
These Clearing-houses would furnish an easy means of communica- 
tion between banks in different parts of the country, and establish 
on a permanent basis, the system of par redemption for country 
checks at certain central points. The great difficulty with this 
plan is to arouse the country banks to a« sense of their duty in the 
matter. Under the present system they enjoy, at the expense of 
banks at the great centers, all the advantages of par redemption 
of their checks. It is not just that the cit3' banks alone should 
bear this expense. The receipt of country checks at par by banks 
in the great cities is a matter of common interest, not to them 
alone, but to the country* banks and to their customers alike, and 
all should be required to share the necessary cost. 

The commercial unity of the country demands a recognition in 
all business arrangements. Isolated action on the part of individual 
banks cannot permanently cope with the problem now before us. 
Concerted action among the banks at the principal commercial cen- 
ters is necessary. If all cannot be induced to unite at first, let enough 
join in some common movement to give it a strength and prestige 
that shall gradually* bring all into the arrangement. Those who are 
familiar with the history of the Suffolk Bank system for the par 
redemption of New' England bank notes know what bitter opposi- 
tion that system at first encountered on the part of the country 
banks. The Suffolk Bank, with the six banks which first inaugur- 
ated the movement, was styled in derision the " Holy Alliance," and 
sometimes the " Six-tailed Bashaw." Yet the system finally triumphed 
over all opposition, and became firmly established, to the great bene- 
fit of the country banks themselves. For forty years this system 
gave a unique and peculiar character to New England banking, by 
virtue of which New England bank notes attained, even in remote 
parts of the Union, a credit which was frequently refused to the 
issues of the local banks. The country banks will, no doubt, now 



278 



PRACTICAL BANKING. 



cling to the small benefits they derive from the delays in present- 
ing checks, and the charges they impose for exchange, until they 
can be made to take a broader view, and measure at their true 
value the indirect advantages which they themselves will realize 
from a comprehensive and liberal policy in extending increased busi- 
ness facilities to their customers. The internal commerce of the 
country should not be subjected to a tax on transactions between 
city and country nine times as great as the stamp tax on checks. 
This is one of the very evils that existed in England before the estab- 
lishment of the country clearing. The latter has proved a complete 
remedy there as it would no doubt here. The details of some work- 
ing plan must be elaborated by the bankers themselves, but that 
business is fast outgrowing the present system, if it has not already 
outgrown it, is a proposition which will receive very general assent. 

As some of the Clearing-houses have until within a few years 
made no returns, while others have only recently begun to make up 
their statements by calendar years, an entirely accurate comparative 
statement cannot be given. The following shows approximately 
the stupendous growth of the system in this country : — 





No. of As- 
sociations. 




Aggregate Exchanges, 


Exchanges Outside 




No. Reporting. 


United States. 
Millions. 


New York. 
Millions. 


1853 


I 


I 


* $ l,304»9 




1854 


I 


I 


5,798,6 




1855 


I 


I 


5,673,7 




1856 


2 


2 


8,404,2 


$ 1,057,4 


1857 


2 


2 


8,59*A 


1,395,3 


1858 


5 


3 


7, 2I 5,7 


i,839,5 


1859 


5 


3 


9,069,3 


2,470,5 


i860 


5 


3 


10,022,1 


2,628,2 


i86t 


6 


4 


7,507,4 


1,991,0 


1862 


6 


4 


10,120,1 


1,885,3 


1863 


6 


4 


20,442,4 


3,oi4,7 


1864 


6 


4 


30,053,5 


4,4i3,4 


1865 


8 


5 


30,437,0 


4,579,o 


1866 


11 


7 


36,235,9 


4,769,4 


1867 


11 


7 


30,322,2 


4,5n,o 


1868 


12 


7 


36,079,7 


4,920,0 


1869 


14 


9 


4i, I 57,i 


5,616,0 


1870 


14 


9 


32,849,7 


5,763,4 


1871 


16 


10 


37, 2 oo,5 


6,557,5 


1872 


20 


12 


43,58i,5 


7,212,0 


1873 


21 


*3 


37,686,6 


7,846,2 


1874 


23 


14 


31,822,1 


7,372,o 


1875 


23 


15 


32,339,7 


8,025,9 


1876 


26 


18 


29,579,8 


8,103,2 


1877 


27 


23 


3i,944,2 


'8,143,5 


1878 


27 


24 


30,133,1 


7,732,o 


1879 


28 


24 


38,59i,2 


9-355,5 


1880 


29 


26 


5o,n3,9 


n,499,5 


1881 


30 


27 


63,414,6 


i4,o37,7 


1882 


30 


29 


60,877,4 


13,960,5 


1883 


3i 


3i 


51,827,1 


14,392,8 




Total 





$ 870,396,6 


$175,092,4 



* Three months only. 



PART IV. 
LOAN AND TRUST COMPANIES, 



HISTORY AND SCOPE OF LOAN AND TRUST COMPANIES. 28 1 



CHAPTER I. 
HISTORY AND SCOPE OF LOAN AND TRUST COMPANIES. 

Loan and trust companies may, with propriety, be termed Ameri- 
can institutions. They had their birth in this country. Charters 
under which some are working to-day date back sixty to seventy 
years. One corporation in Philadelphia, doing a loan and trust 
business, was organized in 181 2, and another in 1832. In New 
York one was granted a charter in 1822, and another in 1830. But 
the great majority have come into existence within the past twenty 
years. Twenty-five years ago but few of the loan and trust com- 
panies now doing business were in existence ; hence it may be 
said that they are a modern institution. In many of the larger 
cities one or more may now be found. In New York there are 
eleven, in Philadelphia nine, in Boston eight, and in Chicago four, 
while in many prominent commercial centers there, are none. 

The original design of the early corporations was that of insur- 
ing lives and granting annuities. The business of holding trusts 
and procuring capital for various enterprises was a secondary con- 
sideration. Life insurance with some of the older companies was 
looked upon as the chief source of revenue. But the tendency of 
business toward specialization has had its influence upon these 
great financial corporations, as it has upon almost every depart- 
ment of business and social life. The business of life insurance 
has become a gigantic enterprise of itself, far surpassing in financial 
importance the operations of loan and trust companies. It is one, 
however, which does not come for consideration within the limits 
of this treatise. 

The usefulness in the financial world of loan and trust companies 
is well understood. In some respects they are similar to banks ; in 
others they are widely different. They receive deposits and make 
loans, but they do not issue currency nor undertake the general 
collection of commercial paper. The purposes for which they are 
organized and the services they perform are numerous. The scope 
of their business has broadened to correspond wjjh their growth 
of capital and to keep pace with the vast sums of money they 
have charge of. By the great breadth of their charters they ac- 
cept and execute all kinds of trusts. They act as registrars and 
agents for the transfer of stocks and bonds, as trustees for corpora- 



282 PRACTICAL BANKING. 

tions, and as executors, administrators, guardians, and receivers of 
.money for courts in complicated litigations. They do a general 
financial business for bankers and others, make investments, collect 
interest, and perform many other financial services. They are or- 
ganized under special charters granted by the legislatures of the 
respective States in which they are located. 



LOAN AND TRUST COMPANIES. 283 



CHAPTER II. 
HOW BUSINESS IS CONDUCTED. 

A number of persons desire to construct gas works. The city 
where the works are to be built promises a liberal support to the 
enterprise. The project has been fully discussed by the business 
men and property owners of the place, and a number of them de- 
cide to combine their efforts in carrying it through. To build the 
works and lay the pipes requires a large expenditure of money. 
It is learned that for a good part of the necessary capital outside 
assistance must be asked. There is nearly always plenty of money 
for all such enterprises, provided it can be shown that the security 
is ample. In the large financial centers, it is known, there may 
be secured the desired means at a fair rate of interest when the 
investment can be shown to be a safe one. What steps are best 
to be taken ? The promoters of the scheme propose to organize a 
joint-stock company. 

Estimates have been made, which show that fifty thousand dol- 
lars will make a reasonable start towards carrying the project along. 
A canvass shows that capital stock to this amount would be sub- 
scribed for. The company is formed, a charter granted, and per- 
mission given by the city authorities to lay and maintain the pipe 
lines. Further estimates are now made, and it is shown that to 
build the works and lay sufficient piping for present needs there will 
be required, besides the already paid-in capital of the company, 
about two hundred thousand dollars. This must be secured by a 
loan. 

The company decide to issue first mortgage bonds for the amount 
of money needed. If they can find persons in their own city or 
among the stockholders who are in position and are willing to 
loan the money they need not call for outside assistance. But in 
this they do not succeed. They then must go to some financial 
metropolis where money is seeking investment. Here they are con- 
fronted with the inquiry: How do we know that our investment 
will be a safe one ? What assurance have we that your company is 
properly organized, and that the proper authority has been given for 
it to make this loan ? And each person who might be willing to 
purchase some of the bonds demands the right to have an agent 
examine into all the facts, and report upon the conditions, before the 



284 PRACTICAL BANKING. 

money could be paid over. In this case the company must pay the 
expenses and fees of the agents and lawyers. They see such a 
course is going to make it exceedingly expensive. But the money 
must be procured, and what shall be done? 

A happy thought occurs to them. They will go to a loan and 
trust company. They visit one of these institutions, and learn that 
they will have no trouble about securing the required loan, if a 
clear title to the property to be mortgaged can be shown, and the 
other usual requirements of investors in such securities are found 
satisfactory. "We will transact your business for you," says an 
officer of the trust company. " In the first place we must put 
the matter in the hands of our attorneys, who will report upon the 
legal status of your company. We must know how much of your 
capital has been paid in. The amount of work you have done in 
the new enterprise. What your assets and liabilities are. The re- 
cording of the mortgage bond of your company may be left with 
us, or our attorneys will look to see that it has been properly at- 
tended to. We will issue the bonds from our institution, make all 
transfers, and pay the interest for you when it becomes due. In fact^ 
we will transact the whole business, turning over the money from 
the sale of your bonds as it is paid in. How much money do you 
want to procure ? " 

"We wish to procure two hundred thousand dollars, or what 
will come from a two-hundred-thousand-dollar bond. We have 
invested about forty thousand dollars. The money procured is to be 
applied in completing our works and in extending the pipe lines." 

"If you have invested only about forty thousand dollars and are 
free of debt, we would suggest that the loan be made in install- 
ments. We could not undertake to issue the whole amount of the 
bonds, excepting as the work progresses, and until we are assured 
that the money received for bonds issued had been properly applied 
in the construction of the works. We would issue, say, twenty-five 
thousand dollars as the first installment, then we could issue fifty 
thousand as the second installment, and so on, increasing the issue 
according to the increase in the value of the security offered." 

"And on what terms would you undertake this business?" 

"We would charge you by the year, according to the amount of 
business transacted, or liable to be transacted. You would pay for 
the fees necessarily incurred at the start, and thereafter probably two 
hundred to three hundred dollars a-year, according to circumstances 
and arrangements." 

An agreement is entered into. The officers of the gas company 
are put to no further inconvenience or delay. When they inform the 

money-lender that the Loan and Trust Company have charge 

of their mortgage business, and are issuing the bonds, rto inquiries 
are made as to the legal status of the company or the mortgage. 
The capital is secured, and the company pushes ahead with its work. 



LOAN AND TRUST COMPANIES. 285 

Loan and trust companies have often proven of great service in 
the construction of railroads. Of course railroads would be built and 
bonds disposed of without the mediation of such agencies, but the 
trust companies have greatly facilitated the work and reduced the 
expenses. 

A party of gentlemen, for instance, organize a company to build a 
railroad which shall run through several States. They cannot among 
themselves raise the necessary capital. They are willing to risk a rea- 
sonable amount of money in the project, if the amount required to 
complete the road can be secured after their own investment shall 
have been expended. They find, among wealthy capitalists, persons 
who are willing to advance the funds, but they do not wish to as- 
sume any risks as stockholders. They prefer to loan the money at 
a fair rate of interest. If the scheme is successful the projectors 
can pay the money back and own the property, thus derive all the 
advantages accruing from their wisdom and risks. 

The following- is the form of a receipt and transfer voucher : 



No ' New York, 18 

i 
For value received do hereby assign and trans- 
Folio f er unto 



Folio Certificates 
Canceled No 



Shares of the Capital Stock of 

the * Company now 

Issued No standing in name on the books of said 

company. 



When the promoters of the project visit a loan and trust com- 
pany, they lay the facts before the officers of the company. They 
are told that when they have constructed a certain amount of road 
the trust company will undertake to place their loan on the mar- 
ket. First, the mortgage securing the loan must be recorded in 
every county of each State through which the road is to run. Sat- 
isfactory evidences that the mortgage is so recorded must be in 
the possession of the trust company. Arrangements can then be 
made to the effect that, as certain sections of the road are con- 
structed, a certain number of bonds will be issued. The amount 
to be issued will depend on the cost per mile of constructing the 
road. Purchasers of the bonds rely on the loan and trust company 
to see that there is never an over-issue of bonds. 

* The title of the corporation printed in full. 



286 



PRACTICAL BANKING. 



Suppose the understanding between the purchasers of the bonds 
and the railroad officials provides that for the completion of each 
ten miles of road there are to be issued bonds to the amount of 
fifty thousand dollars. It becomes the duty of the trust company to 
know that this amount is not exceeded. Any excess in issue would 
depreciate the value of the security. It is seen in this how the 



For explanation of Forms, see closing- paragraph of this chapter. 
Right hand page. 



Register of Certificates of Stock. 
Countersigned by the 


Date of Surrendered 
Certificate Can- 
celed. 


No. of 
Ctf 


No. of 
Shares. 


In Name of 


Remarks. 















trust company serves the interests of both borrowers and lenders* 
The trust company not only attends to the business of the railroad 
company in securing funds, but guarantees to purchasers of its se- 
curities that there is no wrongful or over-issue. The part taken by 
the trust company is one, then, not only to transact the business 
for the corporation, but to supplement this service by aiding in se- 
curing the faith and confidence of investors that the securities they 
take are in every case what they are represented to be. 
Another important service is rendered by loan and trust com- 



LOAN AND TRUST COMPANIES. 



287 



panies to corporations. That is, issuing certificates of stock, and, in 
case of sale from one person to another, making transfers of same. 
Many corporations leave the business connected with stock opera- 
tions almost entirely in the hands of some loan and trust company. 
The purchase and sale of stocks of corporations, especially those 
whose stocks are on the market, is made mostly in some of the 
important financial centers of the country. Here too, is where the 
loan and trust companies are located. It is a special advantage to 

Left hand page. 





Loan and Trust Company. 


Date of New Ctf. 

Countersigned and 

Lssued. 


No. of\ No. of 
Ctf. SJiares. 


Ln Name of 


Remarks. 















holders of stocks to be able to have the necessary record made 
on the books of the company, showing that they are the holders, 
without having to forward the certificates to some remote place for 
that purpose. By an arrangement between the loan and trust com- 
pany and the corporation, the former becomes the custodian of the 
transfer books. When an election of officers of the corporation 
takes place the transfer and stock books must be in the hands of 
the inspectors of the election. To meet this requirement the books 



288 PRACTICAL BANKING. 

are forwarded or handed over to the officers of the corporation by 
the loan and trust company. 

When the holder of shares of a corporation sells his stock, and 
the purchaser wishes the transfer recorded on the books of the 
company he must present to the transfer clerk at the office of the 
loan and trust company the stock of the seller. This stock be- 
comes the voucher of the transfer clerk, showing his authority for 
making the transfer. 



Record of Mortgage Bonds of the Bee Line R. R. Company. 
1884. Bonds Received. 



Oct. 



10 



Rec'd from the Bee Line R.R. 
Company per Jacob Trusty, 
President, 150 First Mort- 
gage Bonds, Nos. 1 to 150 
inclusive. To be issued ac- 
cording to the terms of 
agreement, in installments 
of ten each, upon comple- 
tion of ten-mile sections of 
said railroad. 

Par value, $ 1,000. 



150 



150,000 



On pages 286 and 287 the formular arrangement of a register for 
recording transfers of stock certificates is given. The form on 286 
represents the left-hand, and on page 287 the right-hand pages of 
such a register. The headings over the several columns serve to 
explain fully the nature of the entries to be made in the book. 
The blank line at the top of the right-hand page is left for writing 
the title of the corporation from which the certificates are issued. 
The register is kept by the trust clerk. A separate register is kept 
for each corporation. 

Loan and trust companies' records of mortgage bonds of corpora- 
tions are made in a book with the ordinary journal-rulings, a 
column being added for giving the number of bonds received and 



LOAN AND TRUST COMPANIES. 



2S 9 



issued. The form on page 288 represents the left-hand, and the 
form on page 289 the right-hand page of such a register. These 
books are merely books of record and do not form any part of 
the general set of books kept by loan and trust companies. 

Much of the bookkeeping of loan and trust companies is simi- 
lar in character to that of banks and bankers generally. These 
corporations often do a large banking business, and have dealers 
who keep running accounts. They more generally, however, have 



Held in Trust and Delivered by the . . . 
Loan and Trust Co. 
1884. Bonds Delivered. 



Oct. 



25 



Delivered 

To J. C. Smith 3 Bonds at 

market value of $ 900 

To A. Goodfellow 2 Bonds 
at market value of $ 900 . . . 
To John Topheavy 5 Bonds 
at market value of $ 900. . . 



2,700 



1,800 



4,5oo 



the accounts of a class who do not so frequently disturb their de- 
posits. Depositors with such companies as a rule are paid interest 
on their credit balances. This requires a slight alteration in some 
of the usual banking books to make them available. The dealers' 
or depositors' ledgers, for instance, are ruled with special columns 
for crediting interest on deposits. 

The other records are kept through the use of an ordinary set 
of double-entry books. Of the various trusts managed by such 
companies there are required to be entered in the books of ac- 
count only such items as affect the revenues and conducting ex- 
penses. The "Trust Account" is a record of the revenues arising 
from this department of the companies services, etc. 



APPENDIX. 



BANKING AS A PROFESSION FOR YOUNG MEN. 293 



BANKING AS A PBOFESSION FOR YOUNG MEN.* 

It is generally true in mercantile life and in the learned profes- 
sions, and always true in banking, that in order to insure success, 
a young man must have some end in view towards which all his 
exertions shall tend. Every young man should have some well-de- 
fined plan of life marked out before him, and all his energies should 
be directed to the realization of it. 

Many have some general object in view, such as getting rich, or 
getting beyond hard work at some time of their life ; while but few 
have a specific, noble mark, towards which they are aiming. This is 
the reason why there are so many second-rate young men to be 
found in every profession, and why so many men of riper years are 
neither one thing nor another — strung up and dangling between 
something and nothing — breathing in the unsatisfying east wind of 
a glorious mediocrity, and hoping that an undefined something may 
turn up one of these days, which shall relieve them and place them 
in an undefined blissful somewhere. According as a young man 
aims, so will his arrow fly. According to the energy with which 
he strives, and the talents which he brings to bear, so will 
he rise. But what are the objects to be aimed at by a young 
banker? For what end should he strive, and what is there ahead to 
reward his toil? What are the advantages of the banker's profes- 
sion? The advantages enjoyed by persons in this profession, for the 
attainment of everything desirable in life, are very great, and the 
inducements held out by the profession to ambitious, enterprising 
young men, are enough to satisfy any reasonable person. A high 
eminence and a name are as sure of attainment as in any other 
business. 

It should be the object of every young man who enters the pro- 
fession, to become thoroughly acquainted with every part of it. 
He should strive to become familiar with it all, from the great 
general principles down to the minutest detail. While in a sub- 
ordinate situation, he should not be satisfied with merely doing the 

* The excellent ideas contained in this chapter first appeared in the Banker' s Magazine 
nearly thirty-five years ago. Time has not impaired their value. They were written by 
George P. Bissell, a banker in Hartford, Conn. 



294 PRACTICAL BANKING. 

work which is laid upon him, but while in this situation, he should 
be fitting himself for the next place above him. His aim should 
be to rise as rapidly as is consistent with a healthy growth, till 
he has placed himself at the head of an institution; and then his 
ambition should be, to be first in his profession, to reach an emi- 
nence and carry his bank with him. To aim merely at a cashier- 
ship, or to be president, is a low aim; but to be known as the 
best cashier or president in the country, is an aim well worthy of 
any man, and is the only one which should satisfy a young man 
entering this profession. A young man can rise as rapidly and as 
surely in this, as in any other profession; he can also rise as slowly 
and as surely, and he can remain as immutably stationary, as in 
any other calling under heaven. There are plenty of stopping places 
adapted to all phases of mediocrity, and these stopping places are 
very tenacious of their prey. A man once fixed in any of them, 
is there for life. 

No one should enter the business unless he is determined to 
reach the top of the ladder. If a man is not somewhat ambitious, 
and unless he can see through a pretty long transaction, he gener- 
ally becomes a fixture. Any one can tell, in the course of his first 
year, whether he is adapted to the business, and whether he will 
succeed. If a young man begin to feel the trap-door of a second- 
rate station, or a subordinate clerkship, pressing him down as he 
is trying to ascend the ladder, let him make a desperate effort to 
raise it; but if he cannot succeed, let him at once betake himself 
to some other ladder, under some other opening. 

Let no one enter this profession with the expectation of becom- 
ing suddenly, or even speedily, rich, for this expectation will be 
disappointed ; neither let any entering the profession be afraid of 
ever becoming poor. Labor is generally liberally rewarded, and 
talent is generally appreciated. There are some, it is true, in banks, 
who receive but small pay, and who delve for years in subordinate 
situations, but such are generally men not largely endowed with 
talent, whose aim is nowhere, and who consequently are paid about 
as much as they are worth. A man of talents and energy is al- 
ways sure of good pay ; sufficient for all the expenses attendant 
upon a genteel style of living, besides a handsome margin for mod- 
erate investment for the satisfaction of that great maelstrom ac- 
count generally known as " sundries." He is always sure of a com- 
petence. 

A competence is all we can enjoy, 

O be content where Heaven can give no more. 

It is impossible to name exactly the amount of salary which a 
young may expect to receive. It depends a little upon the locality 
and size of the bank, and a great deal upon what the young 
man himself is. A moderate young man in a moderately-sized bank, 



BANKING AS A PROFESSION FOR YOUNG MEN. 295 

generally has a salary very nicely fitted to him, while an energet- 
ic, talented young man, in a good institution, can be the recipi- 
ent of almost any sum that he has the face to ask for. Some idea 
upon which to base expectations may be formed from a knowledge 
of the fact, that tellers' salaries range from $500 to $1,800 per 
annum; cashiers' from $800 to $5,000, and presidents' about the 
same.* In some banks the office of president is a mere sinecure; in 
such banks the president receives no salary, but takes it out in 
honor. Let a young man fix in his mind the salary that he thinks 
he ought to be worth, and then work for it, and he will generally 
receive it. A banker, from the nature of his position in the finan- 
cial world, has often opportunities thrown in his way for making 
money besides his salary, but this should not be counted upon by 
a young man, for it is very uncertain. If a young banker is work- 
ing for a name, a reputation, and, — which follows as a matter of 
course, — for a high salary, his best course is to keep himself free 
from anything like speculating, shaving or dabbling in stocks. He 
should engage in no other business but his bank, and he should 
keep himself as far as possible from any course in which there is 
the least possibility of becoming in any way involved or embarrassed. 

There is less anxiety of mind in this profession than in most 
others. It is true that the banker has a great many cares, and his 
mind has about as much as it can well do, but there is none of 
that terrible anxiety of mind which waits upon the merchant who 
has his warehouses full of goods, prices falling, and money scarce. 
The merchant at times is elated by prosperity, and again he is 
weighed down by anxiety, and either extreme, or the transition 
from one to the other is very wearing; but the banker has at 
all times enough to think of. He is never troubled with the 
alternations of excitement and depression ; his mind is constantly 
active, not overtasked, and consequently its action is always healthy. 
During business hours he works hard, but at night he can 
throw off all care, and devote himself, if he choose, to literary pur- 
suits, and to self-improvement. 

There are times in great commercial distress when confidence is 
destroyed, that banks are crowded and pressed very hard ; but with 
ordinary management they can be carried safely through. No bank 
ever failed where there was good management and no speculation. 
All that is required is caution and prudence : but the most inces- 
sant exercise of caution and prudence will not amount to that anxi- 
ety which produces sleepless nights. 

A banker can have a great deal of time to devote to mental 
culture, and to the acquisition of useful information. He generally 
has his evenings to himself free from care, and much can be done 

* Since this was written these salaries have increased until they are now (1884) about 
doubled. 



296 PRACTICAL BANKING. 

by the improvement of such hours. His business is of such a 
nature that this is not incompatible with being first in his profes- 
sion. There are some, however, who work night and day, and make 
slaves of themselves, but such are generally men who care but little 
for mental improvement, and whose whole aim seems to be to re- 
main in a bank, and yet realize a treadmill. Let them work. 
They have the satisfaction of knowing that they are not always the 
best bankers. The best in any profession are those who have room 
enough in their brains for more than one idea, and who take time 
for something besides dollars and cents. A banker can, if he will 
apply himself, so cultivate his mind that he will shine as brightly 
in social life, and appear as well, even in literary circles, as men of 
liberal education. 

These are some of the advantages of the banker's profession, and 
these are some of the inducements which are held out to those 
who wish to enter it. 

A young man in order to succeed should maintain a straightfor- 
ward course, both in his own affairs, and in the affairs of the 
bank ; he should be possessed of a clear head, a mind not easily 
carried away by tempting offers for speculation, a disposition to re- 
ceive very fair stories with considerable allowance ; he should have 
urbanity combined with firmness and decision, and above all, he 
should have a deep-seated, stubborn passion for good security. 

These are the traits which are absolutely necessary to insure success 
in banking. Without them, no young man should enter a bank. 
Without them, a young man should rather take himself to some 
one of the other professions, where even a fool can sometimes make 
a happy hit. In banking there are no happy hits to be made ; the 
life is one long, dead pull upon talent, energy, and perseverance. 



ADVICE TO DEPOSITORS. 297 



ADVICE TO DEPOSITORS. 

If you are a stranger to the officers, and wish to open an account, 
get some respectable person who is known to them to introduce you 
either to the President or Cashier. Do not ask him to vouch for 
anything beyond your integrity and fairness in dealing. Tell your 
own story about capital, business, property, and other matters 
which pertain to your commercial prospects — and exaggerate noth- 
ing. There is no humbug that will recoil upon yourself so surely 
as an attempt to palm off big tales on a bank officer. Your deposit- 
tickets, your checks, your bills receivable, your endorsements, and 
your ledger account, make together a history that dispels all shams, 
and leaves little to say. A man who begins with an exaggerated 
account of himself is measured by it afterwards, and appears rela- 
tively small. 

Borrow no money of your neighbors to swell your first deposits. 
This is a common practice, with the idea that it will make a favor- 
able impression on the officers. They see through it at once, and 
take it as a proof of weakness. 

Never try to bargain for special indulgences, such as the certifi- 
cation of your checks before your deposit is made, or the discount 
of your paper by the 'officers without its submission to the Board of 
Directors. The character of your account will settle these matters 
much more satisfactorily to all parties. 

Let your intercourse with the officers be candid and courteous, 
and be sparing in your personal solicitation for discounts. Choose 
the earlier hours of the day for your interviews, and especially 
avoid the last hour before three o'clock. 

Write your signature with the same freedom that you do in your 
own office, and never vary the style of it. 

Teach your clerks to use always the deposit-tickets furnished by 
the bank, to examine the date and endorsement of every check, 
and also to see that the writing of the amount corresponds with the 
figures. Instruct them to learn and to follow the rules of the 
bank with respect to getting checks certified before deposit. 

Make your deposit as early in the day as possible. If you are 
accustomed to have many checks, or large packages of bank bills, 



-9 8 PRACTICAL BANKING. 

it is better to make two deposits — one at an early hour — than to 
hand in all at once just at three o'clock. Never change checks 
with other people merely to make larger figures. It causes need- 
less labor to the bank clerks, makes you responsible for the debts 
of others, and is a real prejudice to your credit. 

Never try to put in your deposit before those in advance of you, 
but take your place in the line, and wait ycur turn patiently. 
Never make deposits without your bank-book, if you can help it. 
Avoid all unnecessary conversation with the clerks, especially with 
the tellers. 

Never get angry if the paying teller examines your account be- 
fore certifying your check ; nor if he Keeps you waiting a few sec- 
onds before he can pay it. 

Make it an invariable rule to give checks only out of your own 
check-book, and at your own office. When you want the endorse- 
ment of the person to whom you give it, if he wishes to draw the 
money, let him endorse the check in your presence, and write your 
own name below his signature, to assure the teller that it is right. 

Never give out checks dated ahead. When you have need to cut 
checks out of the end of your check-book, mark in the margin 
what they are for — to supply duplicates, or otherwise. Keep your 
check-books out of the sight and reach of strangers. Never give a 
stranger a check unless you have some evidence that he is not 
seeking it for fraudulent purposes. Never draw checks against your 
account, on the ground that you have sent some abroad that will 
not return immediately. Always consider a check paid when you 
give it out. 

Never attempt to pay a note with an uncertified check, at a bank 
where you keep no account. If you make your promissory notes 
payable at a bank, give the paying teller a list of them on Monday 
morning for the current week, or send him your bank notices on 
the day of their maturity. 

W T hen you want notes discounted, offer them on the regular days, 
and in good season for the clerk's convenience. Never call on bank 
officers to discount notes between the board meetings, if you can 
wait until the following discount day. Do not put off the offering 
of notes for discount until the last day of your need. It is better 
to keep from ten days to a fortnight ahead, and to let your bal- 
ances remain in the bank until you require them. The loss of in- 
terest is very trifling at best. You lose more by anxiety and unfit- 
ness for business. 

When you want your bank-book balanced, or entries made in it, 
apply to the bookkeeper early in the day. Never ask a service of 
him later than one o'clock if you can wait till the next morning. 
Do not allow your book to run too long without being balanced, 
and when balanced, examine your canceled checks without delay. 



ADVICE TO DEPOSITORS. 299 

If the bank ledger shows a larger balance in your favor at any 
time, than your own check-book, acquaint the bookkeeper with it 
immediately. As you value your credit with the bank, never take 
advantage of deposits wrongly entered to your account, but let your 
dealings be strictly honorable. 

If you have any cause of complaint against the clerks, state it 
directly to the officers. The clerks act under their instructions, 
which they dare not disobey. 

The bookkeeper is the proper person to apply to, to know if col- 
lection notes are passed to your credit. 

The note clerk will inform you of the maturity of notes for a 
future time. In the case of discounted notes apply to the discount 
clerk. The discount clerk, or the note clerk, will commonly tell the 
exchange or charges for collecting foreign paper. 

When you have notes to send abroad for collection, deposit them 
in ample time for deliberate record and transmission by the bank. 

If the drawers of any notes lodged as collateral to loans or dis- 
counts should fail, do not wait for the bank officers to discover 
it, but substitute good notes for them without delay. 

The observance of these rules, ana such others as may be sug- 
gested by your own observation, will be a great economy of time 
to yourself as well as to the bank clerks, and promote your real 
credit with the institution. 



300 PRACTICAL BANKING. 



SUGGESTIONS TO YOUNG- CASHIERS ON THE DUTIES 
OF THEIR PROFESSION.* 

Banking has become a part of the very framework of our system 
of business. Even Mr. Calhoun said, as long ago as 1816, when 
the whole banking capital in the United States was only eighty 
millions of dollars, that " the question whether banks are favorable 
to public liberty and prosperity was one purely speculative. The 
fact of the existence of banks, and their incorporation with the 
commercial concerns and industry of the nation, prove that inquiry 
to come too late. The only question was, on this hand, under 
what modifications were banks most useful," etc. Banks now exist, 
in some form or other, everywhere, and will continue, probably, as 
long as property shall be bought and sold on credit. In all com- 
ing time, therefore, we are to have a class of men to deal in 
money, in promissory notes, and foreign and domestic exchange. The 
avocation has ever been honorable, to the last degree responsible, 
and exposed to many and to peculiar temptations. 

The world, seemingly more inexorable with our profession than 
with others, deals out its direct maledictions upon those of us 
who err, and will hardly forgive the managers of a broken bank, 
or the officer whose " cash is short," even when there is no other 
guilt than credulity, too easy good nature, or incapacity. To stand 
upon our defence against unjust accusations, and to do what we 
can to diminish the causes of corporate and of individual delin- 
quency, are duties which we owe to ourselves and to those who 
are to succeed us. Dispersed, as we are, over a vast extent of 
country, we can best correct public sentiment, and afford counsel 
and admonition to one another, as well as render our knowledge of 
banking available as common stock, by means of the work estab- 
lished for, and devoted to, our benefit. 

Banks, with us, both public and private, differ — as none need to 
be told — in many things from those of England and of Continental 
Europe. It is known, also, that our system is not perfect, and that 
essential improvements can be made in it. Hence, whatever the 
value of essays upon foreign banking, papers devoted to our own 
are far more useful to us, regarded as a class; and hence, too, the 

* This essay, by Lorenzo Sabine, of Framingham, Mass., was originally published in the 
Banker' s Magazine in January, 1852. A few changes have been made to adapt it to the 
present work. 



SUGGESTIONS TO YOUNG CASHIERS. 301 

necessity for a free interchange of thought by bankers in different 
parts of the Union. 

I pass now to topics immediately connected with the duties of a 
Cashier. The limits of this essay do not admit of elaborate reason- 
ing, but demand, indeed, that mere suggestions shall be made with 
the brevity of proverbs. I may be permitted, then, to address my- 
self to the young officer, directly, and, as it were, personally. 

You are to lead a life so confined, sedentary, and, in some re- 
spects, so mechanical, that, unless you observe great care, you will 
become, in the lapse of years, a sort of machine for computing 
discounts, counting money, writing letters, and keeping books.* You 
are to transact business, and to have a constant intercourse, with 
men of every shade of character, of every variety of disposition, 
and of every degree of intelligence. Your temper is to be tried by 
interruptions at the most unseasonable moments, to attend to the 
calls of the impatient, or to answer the inquiries of the ignorant 
or inquisitive. You are to be tempted to embark in speculations 
in stocks : to be solicited to allow overdrawings and other irregu- 
larities by the companions of your social hours, and it may be, by 
one or more of your own directors ; and you are to have the 
same domestic cares and afflictions, the same personal aches and 
pains as other men ; and yet you are expected to be ever at your 
post, to be ever courteous, to stand fast in your integrity, and to 
seem cheerful, and even happy. In a word, and as Girard said, at 
the decease of his old and faithful cashier, " the bank must go on," 
whatever your private griefs or individual disabilities. Your position 
is thus one of much difficulty, responsibility and peril ; and you 
need a knowledge of the laws of your physical being, the counsel 
of wise friends, strict and daily self-examination, and deep religious 
principle, to enable you to sustain it in health and honor. But be 
of good cheer ; be a true man, and you will overcome every ob- 
stacle in the way of a long and of a useful life. 

Your bank has secrets ; and, that they be kept inviolable, adopt 
a rule to speak of its affairs only to persons connected with you 
in its management. 

You should embrace every opportunity to acquire information as 
to the standing of your customers ; and whatever is imparted to 
you on the subject, whether in confidence, or otherwise, should be 
communicated to your directors, and to them alone. 

* Every person of observation will attest to the need of the caution in the text. Long and 
close application to one branch of business, and the habit of being at one place for a course 
of years, produce wonderful transformations in the character. The case of Mr. Rippon, the 
late chief Cashier of the Bank of England, furnishes an illustration well worth citing. He 
was connected with that institution for more than half a century, and asked but for a single 
leave of absence from his post during the entire period, and in this instance, even, he ap- 
plied at the suggestion of his physician, on the ground of ill health. Permission was granted, 
and our bank officer departed from London to be absent two weeks. But the country was 
without charms . idleness preyed upon his spirits, and the habit of years was so strong that, 
at the end of three days, he returned to the bank, solely to become happy again. 



302 PRACTICAL BANKING. 

You should become acquainted with the laws relative to bank- 
ing, and especially with those of your own State ; and should be 
familiar with some work which treats of notes and bills, of the 
liabilities of sureties, drawers and indorsers. I recommend, as the 
easiest way to obtain, and to retain, knowledge in these particu- 
lars, that you make a manual, or brief digest, with marginal ref- 
erences to the authorities which you consult. The best books are 
Daniel 071 Negotiable Instruments, and Morse on the Law of Banks 
and Banking. To master these works, or even to obtain common 
knowledge of the immense learning which they contain, will require 
time — much time. But the leading principles applicable to promis- 
sors and other parties to commercial paper, are easily fixed in the 
memory, and no time should be lost in consulting the latter treatise, 
at least. I recommend to the young cashier to devote a part of 
his leisure to professional reading of a more general nature. The 
history of the system of credit is not only curious, but interesting 
and instructive. Strangely enough, as he will find, banking owes its 
origin to the Crusades, for the earliest institutions of which there 
is any account was a mere bank of deposit, established at Venice, 
late in the twelfth century, for the purpose of aiding those 
who fought to win the Holy Land from its unholy possessors. 
Such was the first element, and the degree of security and facility 
of commercial transactions of the period may be seen in the fact 
that, in England, contracts between individuals were discharged by 
payments in cattle, horses, dogs, and even hawks ; and that rents, 
fines, and taxes due the crown were paid in the same kinds of 
property, in products of the soil, and in merchandise generally. In 
a word, the idea of paper money based on the precious metals, or 
on personal estate and credit, or on lands, had not been conceived, 
we may fairly conclude, anywhere. Next, if the notes of my own 
reading be accurate, and equally strange, we hear of some sort of 
paper credit, early in the thirteenth century, not in any trading 
country of Europe, but in far-off, and, as we commonly say, in bar- 
barous China. So, again, toward the close of the last-mentioned cen- 
tury, we are told that the hated and hunted Jews and Lombards 
invented the bill of exchange, which afforded means for the silent 
and secret transfer of funds from country to country, to the in- 
finite discomfiture of robber kings and of robber outlaws. Next, 
probably, in chronological order, was the promissory notes, which 
strange device, grave and learned judges, in solemn wig and er- 
mine, dared at length to pronounce to worn and weary litigants, 
mighty if traffickers so willed, pass current from one person to 
another, and be lawfully collected by the final owner.* Still, again, 

* As late down as the reign of William and Mary, the courts of England refused to con- 
sider an inland bill of exchange a legal instrument; nor was it until the time of Anne, 
that a promissory note, in the hands of an indorsee, could be collected by law, of the maker. 



SUGGESTIONS TO YOUNG CASHIERS. 303 

about the middle of the fourteenth century, we meet with the ori- 
gin of picblic scrip in the governmental certificates of Florence, 
which, I suppose, were the first ever issued in Europe. Thus, we 
have five elements, in modern banking. Two others, namely, those 
of discount and circulation, were yet wanting. Neither power was 
conferred upon the Bank of Amsterdam, which, founded near the 
opening of the seventeenth century, was designed merely, as it would 
seem, to check the evils of a clipped and worn metallic currency. Nor 
was the Bank of Hamburg, which was established immediately after, 
hardly more than an institution for deposit and transfer. In the 
progress, however, of civilization, or commercial dealing and necessity, 
we come at last, and toward the close of the seventeenth century, to 
the Bank of England, which was invested with authority to receive 
deposits, to buy and sell exchange, to aid in the management of 
public securities, to discount promissory notes, and to issue a paper 
currency. And so it appears from this rapid view, that more than 
five hundred years elapsed before all the elements of modern bank- 
ing are combined, arranged, and reduced to a system in which 
statesmen and merchants reposed confidence. 

The young cashier having, by his researches, convicted me of 
inaccuracy, or having established the truth of the foregoing out- 
lines of bank history, may, as opportunity occurs, pursue the sub- 
ject still further. The first charter of the Bank of England is ac- 
cessible, and he may study it with profit, and to ascertain the im- 
mense progress which has been made in the principles of banking, 
whether as relates to rights of stockholders or to public conve- 
nience and safety. He will find valuable lessons in the legislation 
of his own country ; in the issue of paper money prior to the rev- 
olution, which at times flooded the colonies, and which in spite of 
the clamors of our fathers, was suppressed by Parliament ; the mar- 
velous tales and traditions which have come down to us of the 
never-to-be-forgotten " continental money," without which the bonds 
of colonial vassalage would not have been broken when and as 
they were ; in the earlier charters of the different State Govern- 
ments, and in the two charters of Congress of the great National 
institution which has now ceased to exist. 

This general inquiry concluded, he will have improved his own 
mind, and be ready to meet and to reason with those who, be- 
cause the system has not been perfected in a century and a-half 
(dating from the establishment of the Bank of England), demand 
its entire abolition, or at least such changes as would render it 
powerless for good, alike to individuals and to communities. He 
can say and prove that credit, wide, liberal, beneficent credit, be- 
longs to the era of liberty, and that it was unknown even in free 
England until after the expulsion of the Stuarts, and until the rev- 
olution there had secured personal freedom. He may stand upon 



304 PRACTICAL BANKING. 

the emphatic declaration of a great statesman,* that the system 
of credit, as it now prevails, is the vital air of commerce, and that 
" it has done more, a thousand times, to enrich nations than all 
the mines in all the world." He should, indeed, admit that its 
fluctuations, its ebbs and flows, sometimes cause desolation and ruin; 
yet he should not fail to insist that good and wise men steadily 
strive to improve it — that, as sweeping conflagrations allow of the 
straightening and widening of streets, and as disasters in traveling 
by steam suggest more careful management and better machinery, 
so do bank failures and the delinquencies of bank officers, however 
appalling the circumstances at the moment, serve to discover and to 
apply new checks and new remedies. 

If your bank is old enough to have been through " a crisis," and 
if you have not served in it as an inferior officer, you have much 
to learn of its past business. Such an institution, for example, has 
a "suspended debt" account, or at best overdue paper secured by 
mortgage or other collateral ; and assets of this description always 
have a history, and sometimes a very intricate, a very perplexing 
one. But you must become master of that history. Directors change 
every year; and in a little time, all who were at the " Board " when 
this class of paper was taken will have vacated their seats; while, 
then, some are still in the direction, make written memoranda of 
the principal facts. 

Let it be manifest to your associates and stockholders, that you 
feel an interest in everything which relates to their welfare. To 
work the whole of your capital and of your deposits, to keep both 
actively employed at all times, and yet to be always able to meet 
the demands on you, require great wisdom ; and the most skillful 
and experienced financiers sometimes find themselves at fault for the 
moment. Your duty requires continual experiments to effect this 
great object. 

Need I suggest the benefits of a fixed system, and of method, 
even in matters seemingly of little consequence ? Everybody finds 
— as seamen have it — that "a stern chase is a long chase." The 
business of to-day should never be deferred till to-morrow. Answer 
letters, and file papers, at the instant. Remember everything, if 
possible ; but trusting to memory in nothing : let your books con- 
tain a record of all transactions. Allow no outstanding bills against 
the bank ; and have a voucher for the smallest item charged to 
" Expense Account." 

You can be, and you ought to be, ready for an " examination " by 
the " Commissioners," or other functionaries of the Government, and 
of your own " Board," without previous notice, and without the 
slightest special preparation. In fine, close your vault daily with 

* Mr. Webster. 



SUGGESTIONS TO YOUNG CASHIERS. 305 

the reflection that no act has been neglected, and that, if sickness 
or death should occur "the bank can go on" with no loss to your 
family, sureties, or stockholders. Do not smile, if I add, that your 
banking-rooms should be swept, and your desks and counters be 
dusted daily; that one "slut-hole" is ample for all the twine 
and waste-paper ; and that the accumulation of official papers and 
memorandums in your private drawer will cause both you and 
your associates serious delays and much inconvenience. 

Panics and pressures are as certain in banking as storms in winter. 
When either exist, firmness and courage, if not really possessed, 
must be assumed. You are presumed to know the nature and ex- 
tent of your resources under all circumstances, and at periods of 
general distrust especially ; and if the amount of those immediately 
available are insufficient for every possible call upon you, thus advise 
your directors without delay. 

A knowledge of human character is indispensable. Study it. The 
" actions, looks, words, and steps " of your customers " form an al- 
phabet : " and your " eyes are spectacles to read others' hearts with." 
Careful, close, and continued observations will enable you to detect 
a counterfeit man as readily as you now do a counterfeit bank- 
note. My own experience is, that those who change countenance, 
or the weight of the body from one foot to the other, when meet- 
ing a full, searching and fixed gaze, are not truthful ; that those 
who ask for additional accommodations, prefacing the request with 
a story divided into acts like a drama, are already bankrupt ; and 
that those who petition in whispers, in an unnatural tone of voice, 
in a cant, or a whine, are hypocrites. Some years hence, I shall 
be glad to ascertain how nearly your experience accords with 
mine. 

You should be courteous and respectful to all. Self-command is 
a great virtue; indulgence of passion is a great fault. Impertinence 
and stupid ignorance might sometimes be rebuked, were it not for 
the danger of contracting a morose and irritable habit of speaking. 
There is no loss of dignity, or of self-respect, in perfect silence 
under the greatest provocation, and that, accordingly, is your safest 
course. The cashier's popularity or unpopularity gives character to 
a bank. The directors are seldom visible, and sometimes unknown 
to occasional customers ; but their executive officer is an ever- 
present and a known man, and should bear in mind the Latin 
proverb, namely, to " be cautious what he says, when, and to 
whom."* 

Should you acquire a reputation, you may be solicited to change 
your place ; or, becoming discontented, may seek to do so on your 

* A " bill-broker," says Mr. Windham Beaves, " should avoid babbling, and be prudent 
in his office, which consists in one sole point, that is, to hear all and say nothing." 



306 PRACTICAL BANKING. 

own motion. In the former case you are to consider your direc- 
tors as your friends, and, stating all the facts fairly, obtain their 
views before taking a single step to meet the overture made to you. 
This is an imperative duty; and performing it in honor, and acting 
under the advice of wise counselors, you can hardly come to a 
wrong conclusion. I assume here that your bank is sound, and 
that it is under the direction of competent and safe men. If un- 
fortunatery otherwise, if your reputation be at stake, and your di- 
rectors, or a governing part of them, are ignorant or regardless of 
the principles of banking, or are "speculators," who seek their own 
accommodation, you should retire at once. But upon this point I 
will not dwell, since it is to be hoped that such institutions and 
such men have nearly passed away. 

It is related that the eminence of the five brothers Rothschild, as 
bankers, is to be attributed in a great measure to their strict observ- 
ance of their father's dying injunction, to "remain united." Well 
may it be so. Unanimity in the direction of a bank is always an 
element of success ; and the result of my observation in this regard 
is, that more losses occur from divisions, than from any other single 
cause. Accommodation notes, large and standing loans to particular 
parties, and similar departures from legitimate banking are only to 
be tolerated in cases which receive the assent of the entire direc- 
tion. Yet I have known one and all of these departures to be con- 
summated, time and again, by directors who owned the smallest 
possible amount of stock, in opposition to the remonstrances of 
older and abler associates who were large stockholders ; and years 
afterward, when legal remedies had been exhausted, and levies and 
set-offs had failed to restore more than costs of suit, have person- 
ally made wearisome journeys and devoted weeks to the service of 
closing up, as I best could, these unfortunate illustrations of the 
rule that " a majority should govern " in the directors' room, as in 
politics. In short, such, in my view, are the evils of the majority 
principle in this connection, that I would counsel a cashier, 
whether young or old, to insist upon a reasonable change, and a 
change refused, to seek an institution more wisely, more safely con- 
ducted. 

You may be discontented without cause. I remember to have 
read a story, in which one of the characters was in possession of 
everything that heart could ask, but was miserable from this very 
circumstance, or because he wanted — a want. Such persons exist in 
real life. Be not of that unhappy class. Accommodate yourself to 
your condition. Do not seek for happiness in change of place, but 
in change of disposition. "The lazy ox wishes for the trappings of 
the horse, and the steed sighs for the yoke," is an old saw that 
has not yet lost its meaning. Nor should the topic be dismissed 
without recalling the pithy epitaph composed for the hypochondriac, 



SUGGESTIONS TO YOUNG CASHIERS. 307 

who quacked himself into his grave : " I was well ; but by endeavor- 
ing to be better — am here." Let the young cashier heed the moral 
contained in these several apt sayings, and remember that care and 
perplexity exist everywhere. To smoothe and fashion the rough 
stone of life is a religious duty. The change of one's home in- 
volves a change of society, of privileges of worship, of schools, of 
facilities in traveling, of household expenses, of access to books, 
and various other essentials; and should be carefully considered in 
every aspect before it is actually undertaken. And I bestow the 
more attention upon the point, because the propensity to remove 
from one place to another is so common, and because within the 
circle of my acquaintance, many have been ruined, and but few 
have improved their condition or increased their happiness, by seek- 
ing a new abode. In middle age, the experiment is doubly 
hazardous. Take up a full-grown tree, and will it live unless some 
of the old earth go with it? Sunder the ties of sympathy and af- 
fection ; exchange old faces and associates for new ones, and what is 
the condition of a man ? 

To resume my personal address to the young cashier, you 
should not possess an overweening desire of praise, nor invite com- 
mendation. Nor should you be intoxicated with your own merits. 

You should never speak of your official acts, except in explana- 
tion and in self-defence. In all pleasantry, I will add, that, in old 
age, you may tell the son who succeeds you what you were in your 
youth ; but, now, be content with the quiet appreciation of others. 
Delicate attentions and marks of respect are the surest and best 
manifestations of regard, and if you have these, do not pine in 
discontent or discouragement. 

In your official intercourse with the president and directors, ob- 
serve great deference ; and at the " Board " it may be proper to ad- 
dress the former by his title. 

Never speak of the real or supposed faults of character of a di- 
rector in the social circle, nor bear tales or remarks from one director 
to another. Whatever your preferences, likes, and dislikes — and you 
will probably have both — your conduct should be uniformly respect- 
ful to all. Whenever your opinion is asked, or given, without so- 
licitation, state your views modestly, and in a conversational tone 
of voice. Should the " Board " differ from you in judgment, and de- 
cide contrary to your convictions, betray no feeling, but promptly 
and cheerfully execute their vote. 

Frequent communications with the directors, relative to the gene- 
ral concerns of the bank and to your own particular duties, will 
be of essential service : since they will thus obtain a knowledge of 
details, and you will have the benefit of their reflections and sugges- 
tions. " Conference," says the wise Lord Bacon, " maketh a ready man." 

Your style of living is a matter of momentous consequence ; and* 



3° 8 ' PRACTICAL BANKING. 

possibly, the hinge on which your final destiny will turn. Not only 
live within your income, but so regulate your expenses that, un- 
avoidable misfortunes or sickness excepted, you shall be sure to 
save at least a quarter part of your salary, as a fund for old age, 
unless, indeed, your patrimonial estate be ample for such a pur- 
pose.* But, whatever be your receipts or expectations from other 
sources, do not allow your expenditures to exceed your personal 
earnings. Be this the great economic maxim of your life. 

Economy is the parent of honesty, of freedom, and of mental 
ease and quiet. Poverty can never enter your abode, if content 
with satisfying your real wants ; while you will never enjoy inde- 
pendence, if you live in accordance with the world's caprice.t If 
you possess an inordinate craving for great wealth, or a desire to 
indulge in luxuries and amusements such as men of fortune alone 
can afford, you have mistaken your profession, and should abandon 
it. For your life, if you remain in it, will be a perpetual struggle 
against your natural inclinations ; and the danger is, that, finally 
yielding to them, you will involve yourself in irretrievable woe. 

The road to disgrace is short. Persons who have traced the 
footsteps of more than one unhappy bank officer that has trodden 
it, have found that extravagance and defalcation were but a few 

* I designed to say a word in the text on the subject of salaries. As a general rule, the 
compensation to bank officers is too small. According to a return to Parliament, in 1832, the 
number of persons employed in the Bank of England and its branches, was nine hundred and 
forty, who (to average the salaries) received only £225, or about eleven hundred dollars each, 
per annum. Since several who filled the higher posts were paid very much larger sums, it is 
evident that a considerable part of this numerous corps could not have received more than a 
moiety of the above average. Yet, as at the same time there were one hundred and ninety- 
three on the pension list who enjoyed annually (on the average) £161, or about eight hun- 
dred dollars each, the faithful officers of that institution who were then in actual service, 
could hope for relief in their declining years. In the United States, the system of pensions 
is not, perhaps, practicable or desirable. But since marriage, a flock of little ones, the owning 
j?f a house unincumbered with mortgage , and a choice collection of books, are all Virtue's 
sentinels, directors ought always to have reference to the support of a family in fixing the 
compensation of their executive officers. Indeed, such officers, like capable and faithful men 
in other pursuits, should be allowed to provide something for old age. It is fair, I suppose, 
to assume that the expense of the executive department, as a common thing, is not far from 
one per cent, on the capital stock, or, in the proportion of one thousand dollars salary to one 
hundred thousand dollars capital. If this be so, it is manifest, at a glance, that a large part 
of the bank officers in the United States ( as gentlemen are now compelled to live both in city 
and country) are required to consult the maxims of "Poor Richard" every day in order to 
secure a moderate competence. The interests of stockholders are not promoted in the long run, 
by low salaries, for low salaries not infrequendy, as experience shows, induce speculations in 
stocks, and other irregularities, which terminate in defalcation. As a class, bank officers are 
not so well paid as officers of railroads and manufacturing establishments, while their duties 
are quite as responsible. 

t The great English banker, Thellusson, who, at one time, was partner with Mr. Neckar, 
the celebrated French financier, left three sons, and a fortune of three and a half millions of 
dollars, which estate, he said, he acquired by "industry and honesty." In his will he re- 
marks : " It is my earnest wish and desire that my sons avoid ostentation, vanity, and 
pompous show" etc. The three, it may be added, became members of the House of Com- 
mons, and the eldest, a peer of the realm. 



SUGGESTIONS TO YOUXG CASHIERS. 309 

strides apart.* A sensual man is disqualified, by his very physical 
organization, for any office in the executive department of a bank, 
and ought no more to be there than in a pulpit. I make the re- 
mark considerately — for good reasons — and not to round out a 
period. And should this essay meet the eye of the father of a 
son ready, by age and education, to enter upon some employment, 
I venture to counsel that, if banking be thought of, the moral 
qualities and the strength of the appetites, as developed in early 
life, are the first things to be considered. The youth who, in child- 
hood, stole slyly to the closet for his mother's sweetmeats, who was 
never content at table with the share of niceties allotted to him, 
who shirked his known tasks, and imposed their performance upon 
a younger and more dutiful brother, and who, as years wore on, 
evinced a disposition to rely upon others, and to earn nothing for 
himself, but yet who showed a determined purpose to feed on the 
best, and to dress in the finest — such a youth, though as quick at 
figures as Colburn himself, should never be placed in a bank. 

" Speculation in stocks " is another fruitful source of ruin, and I 
cannot forbear a word of admonition. The careful investment of 
your earnings or patrimony, and a similar service for friends and 
customers, define, in my judgment, the general limits of your opera- 
tions in the stock market. To say nothing of thei hopes and fears 
consequent upon the adventures of a dealer, and nothing of their 
influence upon 3^our mind and temper — already sufficiently tasked — 
I may ask, in all seriousness, what assurance have you, what as- 
surance can you have, that your virtue will resist the temptations 
sure to beset you ? Once embarked and afloat on the stock ex- 
change, either alone or with partners, you cannot move without 
means : and who shall answer for the money intrusted to your 
care? Who shall answer that you will not "borrow'' from your 
vault — as others have done — feeling sure that you can " return " the 
sum )"ou need "in a few days with interest?'' At the outset you 
will not " risk much ; " you desire only " to gain something to add 
to a moderate salary." But encouraged, at length, by your own 
success in small operations, or excited by the real or reported good 

* "The London banker of the old school," says Mr. Lawson, ,k had little resemblance to the 
modern gentleman who is known by the same title. He was a man of serious manners, plain 
apparel, the steadiest conduct, and a rigid observer of formalities. As you looked in his face, 
you could read in intelligible characters that the ruling maxim of life, the one to which he 
turned all his thoughts and by which he shaned all his actions, was : ' That he 70/10 would 
be tiusted -with the money 0/ other men should look as if he deserved the trust, and be an 
ostensible pattern to society 0/ probity ', exactness, frugality , and decorum.' " And further, 
says the same writer: "The fashionable society at the West End of the town, and the 
amusements of high life, he never dreamed of enjoying, and would have deemed it nothing 
short of insanity to imagine that such an act was within the compass of human daring, as 
that of a banker lounging for an evening in Fop's Alley at the opera, or turning out for 
the Derby with four grays to his chariot, and a goodly hamper swung behind, well stuffed 
with perigord pies, spring chickens, and iced champagne." 



310 PRACTICAL BANKING. 

fortune of those around you, the resolution may be formed to win 
a competence at a single cast of the die : you lose, and are ruined ! 
Be warned, I entreat, in time. No bank officer — in charity, we may 
believe — ever meant to be a defaulter ; no one, at the beginning of 
an irregular course, thought defalcation and disgrace possible. Yet, 
alas for the many victims of self-deception ! alas for the self-confi- 
dent, and for those who neglected the great duty of self-examina- 
tion ! Most affectionately and earnestly do I charge you, as you 
value your peace, as you would save your integrity, as you would 
not be driven forth, a broken and shunned man, to resist every 
seduction of avarice from within, and every solicitation of com- 
panions from without. No matter what pretence or excuse a stifled 
conscience may allow you to frame, the cash in your va7ilt is not your 
cash, a7id you touch it for your private benefit, or relief even, as a 
robber, and at the peril of your soul! Think, ere you yield, of the 
long roll of sad-faced men who once were honored and trusted, 
but who, when tempted, fell ! Think of those who, wrecked in 
character, in fortune, and in hope, have become bloated, ragged 
wanderers ! Think of those of whom fathers and mothers, and even 
wives and children, dare not speak save in whispers, and at the 
family fireside ! Think of those who have been hurried to the 
prisons and to the tribunals! Think of the graves of the suicides! 

A single warning more, and I pass to less painful topics of dis- 
course. Allow no customer to overdraw his account upon your 
own responsibility or without the express sanction and authority 
of directors.* The habit is a bad one, every way, under any cir- 
cumstances ; and I wish it could come to an end at once, every- 
where and forever. But if it be permitted in particular cases in 
your bank, have neither part nor lot in the matter, save to execute 
a positive order. Discourage the practice in every possible man- 
ner, and if fortunate enough to put an end to it, you will deserve 
the praise of every correct banker in the country. At your post, 
and in bank hours, you are to have no friends to indulge with 
favors, no enemies to punish with refusals. Then and there all men 
should be alike to you. The motto of the Banker s Magazine should 
be yours, without reservation or condition.! In fine, perform no 
act that you would omit in the presence of the full " Board," 
or in that of the sureties on your official bond. This rule will 
carry you safely through every difficulty and every temptation. 

Pardon me if I now suggest the importance of maintaining a 
reputation for strict, exact veracity. An aged judge is said to have 

* I believe that no customer of the Bank of England, whatever his rank, is allowed to over- 
draw. 

f " No expectation of forbearance or indulgence should be encouraged. Favor and benev- 
olence are not the attributes of .good banking. Strict justice and the rigid performance of 
contracts are its proper foundation." 



SUGGESTIONS TO YOUNG CASHIERS. 31 1 

remarked, ironically, that " half the cases he had tried on the 
bench arose from good understa,7iding between the parties ; " and by 
this he meant, that half-made bargains and agreements lead to 
disagreement and litigation. Avoid misunderstandings from this 
source. Many, indeed most, of your transactions will be upon verbal 
contracts. But you may use words so terse, so precise, that mis- 
conception will be hardly possible. 

The honor of a cashier and the honor of a woman are alike. Sus- 
picion of either in the public mind is as fatal to reputation as con- 
victed guilt. Stand by, stand for your honor, then, against all comers, 
and to the last. Preserve your own respect, though you be fed by 
the hand of public or of private charity. Napoleon, at the hour of 
his downfall, deposited the remains* of his fortune with Laffitte, and 
refused an offered and customary certificate, saying : " I know you 
— I hold you to be an honest man." The Paris banker, in the 
course of events, became a cabinet minister ; but such a testimonial 
to his probity from a man whose estimate of human virtue was too 
low to be just, and who, at the moment he uttered it, was, as he 
imagined, the victim of faithlessness and treachery, will be remem- 
bered when the records of his political honors are torn and scat- 
tered. But yet, any man, in his own circle, may, if he will, have 
it said of him: "I know you — I hold you to be an honest man." 
My young friend — now starting upon a banker's career — burn these 
words deep into your memory! 

As in some things there are marked distinctions between banks 
in different sections of the country, and between country and city 
banks in the same State, and corresponding differences in the duties 
of a cashier, it is obvious that no series of "suggestions" can be 
alike applicable to all. But I may still hope that the young and in- 
experienced officer will not fail to find some useful hints in the 
preceding remarks, whatever his particular position or special 
charge. 

And while this may be so, the country cashier may yet need cau- 
tions and recommendations adapted to his peculiar official and social 
relations. Such, then, as I deem the most important, I shall briefly 
and respectfully offer. First, as it sometimes happens that the per- 
son selected for the executive department has had little or no ex- 
perience in banking, and is to be connected with directors whose 
knowledge is as limited as his own, the duty of consulting well- 
informed officers of city banks is manifest. The country cashier 
is often alone. Without paying or receiving tellers, bookkeeper, or 
discount or collection clerks, but invested with the functions of 
all, skill, system, and an economical use of time, are indispensable 
to success. I have known gentlemen who, though possessing quick 

* Five millions of francs. 



312 PRACTICAL BANKING. 

and clear perceptions, and almost every other natural endowment, 
were still, at the time of their election, incapable of opening or of 
properly keeping a single bank-book. Some of these, remarkably cau- 
tious in their habits of business, and profiting by mishaps, escaped 
serious losses, and, in the end, became accomplished officers; while 
others, more sanguine in temperament, and more self-confident, and 
unwilling to seem novices, involved themselves in difficulties which 
caused them much mental disquietude and pecuniary embarrass- 
ment. Now, it is apparent at a glance, that both classes, had they 
started right, might have avoided a great deal of painful experi- 
ence. 

I commend to you, therefore, if not bred to banking, the sources 
of information, which are open to you, and to all who desire to in- 
crease their knowledge. Accuracy in the count of money is the 
first, accuracy in the keeping of accounts is the second, qualifi- 
cation in a country cashier ; and, while you may acquire the 
first by practice, you may go wrong with your records all your 
life. 

A small bank should be conducted on a plan as systematic and 
as regular as a large one. Experience has shown, I think, that 
bank accounts should be kept in " double entry," and that each 
department of bank business requires a separate book. Thus in an 
institution with a capital of only fifty thousand dollars, I consider 
that a general and deposit ledger, that books for cash, deposits, 
discounts, credits, collections and trial-balances, are as essential as 
in one of a million of dollars. And the same remark is true of 
stockholders' and directors' records, of a book to show the state 
of the bank, and of another to exhibit the paper to mature in any 
given week. 

The general and the deposit ledger may be one ; the former oc- 
cupying some seventy-five or one hundred pages, and embracing 
accounts with things, the latter with persons. The cash should be 
settled daily at the close of business, when, also, a trial balance 
should be taken of the general ledger postings. On the last busi- 
ness day of the month, the depositors' accounts should be adjusted, 
and the balance of each be transferred to the trial-balance book 
to ascertain whether the deposit ledger has been correctly posted. 
The daily settlement of the cash — neglected in some country banks, 
unless the reform has been very recent — need occupy but a few 
minutes, since a vault-book accurately kept, leaves for actual count 
the cash in drawer only. " Memorandum checks," and similar 
vouchers — to say nothing' of the grave consequences which some- 
times result from their use — are great pests in a% cashier's drawer, 
and should not be allowed there, except in the most urgent cases. 
Some cashiers keep " ragged bills," never intended to be reissued, 
in vault for months, and even years ; but the practice is at- 



SUGGESTIONS TO YOUNG CASHIERS. 313 

tended with obvious risk and inconvenience, and should not 
exist. 

As already intimated in another connection, your directors, how- 
ever worthy and respectable as citizens and gentlemen, may be 
poorly versed in the science of banking, and may not, at first, ap- 
preciate the force and the reason of the rules which you deem 
necessary to adopt in transactions with them and with others. But 
evince no impatience. I assume that a majority of any and of 
every " Board " are men of honor, and mean to do right ; and that, 
in explanations and conversations with yours, you have but to 
calmly point out the evils likely to arise from a course opposite to 
that which you insist upon, to obtain their approbation. Yet you 
yourself should be well assured that these rules are consonant 
to law, or are such as are imposed in well-regulated banks, or 
such as, in your peculiar position and relations, are imperatively de- 
manded. 

It is possible that your predecessor allowed improper indulgences 
to a particular director, or had favorites among your customers, and 
that you will feel constrained to put an end to these and to similar 
irregularities. To accomplish this, in harmony, will require all the 
wisdom and good-nature that you can command. It is possible, too, 
that overtures may be made to you to grant favors inconsistent 
with your duty ; but, as such cases will arise from thoughtlessness 
or ignorance, as often as from unworthy motives, you should be 
silent, except when corrupt intentions are too apparent to be mis- 
taken, or the importunities of the same person become so frequent 
as to be troublesome. 

The customers of a country bank, unlike the merchants of large 
and busy cities, expect of the cashier some inquiries about their 
families, and remarks upon the news of the day, upon the crops, the 
weather, and other matters of personal or local interest. To a 
reasonable extent this expectation should be gratified. But discus- 
sions across your counter on topics of sectarian theology and party 
politics are to be avoided — entirely avoided. Nor, if you hear, should 
you reply to, or take part in, tales of scandal and neighborhood 
gossip. Polite to all, sociable to a degree not to interfere with 
your duties, inviting and giving friendly greetings, your deport- 
ment is yet to be dignified, and such as becomes a well-bred gen- 
tleman. 

You will transact business with persons who cannot even write 
a note of hand in proper form ; with those who cannot be made 
to acknowledge the necessity of a notice to an indorser; and with 
those who will pertinaciously insist upon having their own way, 
whatever your reasoning or objections to the contrary. Teach the 
ignorant, without giving them pain ; be firm with the self-willed, 
without evincing impatience or anger; for the smart of a sharp 



314 PRACTICAL BANKING. 

word, or of a proud toss of the head, is sometimes felt for years. 
" Contempt," says an Eastern proverb, " will penetrate the shell of 
a tortoise ; " be sure to remember it will pierce deeper into the 
epidermis of a fellow-man. 

To require, and to insist upon, regular bank hours will occasion 
some difficulty in some places. People whose business at banks is 
rare, seem to forget that a cashier, like other men, has a love of 
fresh air, or that he needs exercise and relaxation ; and thus can- 
not or will not understand why he is not ready to accommodate 
them early in the morning, and late in the evening. These per- 
sons seek him in his moments of rest and recreation, ask him to 
receive money at his house, or in the village stores, and complain 
if he refuses such reasonable requests. You will be unjust to vourself 
if you submit to these, or to similar demands. The intervals be- 
tween bank hours are yours by positive contract, and by the very 
necessities of your physical and mental being. Do not permit in- 
roads upon them, save in extraordinary exigencies ; in these, leave 
your bed even, to serve a customer. Still, as loose and unsafe 
habits may have been encouraged by your predecessors, or counten- 
anced by directors, measures of reform will be odious, unless grad- 
ual. Under kind and considerate treatment your laggards may be- 
come punctual, and untimely requests to open your vault entirely 
cease. 

A single " suggestion " more. The private and social relations 
of a country cashier are of consequence, and ought not to be over- 
looked. And, first, a salary officer, under ordinary circumstances, 
needs not to be in debt for his personal or family expenses ; and, 
as cash payments are sure to show whether he is " living beyond 
his means," may I not commend the safe rule of " paying as you 
go ? " 

Again, may I not be allowed to suggest the duty of constant at- 
tendance at church, even though you cannot worship with persons 
of your own faith ; and also of manifesting an interest in schools, 
public lectures, lyceums, and other means employed to promote the 
welfare of society ? The community in which you live have a claim 
upon you, not only for an exemplary life, but for contributions of 
money in proportion to your ability, to aid in the maintenance of 
the religious, literary and benevolent associations established among 
them. 

To conclude. Should it be thought that I might have omitted 
the discussion of some topics, and have treated others with greater 
brevity, *I submit, with deference, that I have endeavored to be a 
careful observer. More than twenty-five years have elapsed since 
the commencement of my connection with banks and banking; and. 
as I now look back and recall the facts elicited by judicious inquiry, 
and the facts embraced in other well-authenticated accounts which 



SUGGESTIONS TO YOUNG CASHIERS. 315 

relate to bank officers who have fallen, never again to rise, or 
whose lives have been saddened and embarrassed by want of firm- 
ness in resisting the allurements of pleasure, or the solicitations of 
the companions of their social hours — by an overweening self-confi- 
dence — by too great faith in others ; as, too, I remember the com- 
plaints against another class, who, though without a moral stain, 
have still injured themselves and the institutions with which they 
are concerned by churlishness and irritability ; I find no cautions 
and admonitions to omit, no recommendations that may not, I 
think, assist in forming the character of the officer for whom these 
suggestions are intended. 

A single word more. Many of the cashiers whose private virtues 
and professional ability adorn the annals of banking in the United 
States, receive salaries nearly equal to the emoluments of cabinet 
ministers, or military officers of the highest rank, and are intrusted 
with powers so ample, that they seem to be private bankers, wield- 
ing their own capital. These gentlemen have attained the crowning 
honors of their profession. Let the "young cashier" aim to reach 
the same eminence among men and among bankers. Let him re- 
member that, whatever the influence of friends at the outset of 
his career, his position in the maturity of his years must, in the 
very nature of things, depend upon himself, upon his capacity, his 
courage, and his probity. 

I have here spoken to him as to my only son, and take my leave, 
in the earnest hope that, in the labors of some one of his seniors, 
communicated to the " Magazine " upon the invitation which, per- 
haps, I have unwisely accepted, he will be sure to find a path 
marked out for him which will lead him to the rewards of a well- 
spent life. 



3*6 



PRACTICAL BANKING. 



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